A wind of gloominess is blowing over the crypto community due to an upcoming EU parliamentary crypto bill despite Bitcoin leading other cryptocurrencies in gains at the start of the week.
On Thursday, March 31, the EU parliament is expected to make a critical vote aimed at ‘modifying the Transfer of Funds Regulation’ in what has been seen as one of the broadest moves by the EU to censor the crypto industry yet. This is even as the EU moves to clip every source of Russian monetary aid associated with crypto, as earlier vowed.
The draft bill raises among others three main red flags. First, a section of the bill that requires the widespread collection of user data, record-holding, and the verification of data for self-hosted wallets. This provision fails to come out clearly on how the crypto service provider is expected to verify the unhosted counterpart which only leads to one conclusion; most crypto companies won’t be able or willing to transact with unhosted wallets anymore in order to stay compliant.
“Not only is this verification requirement nearly impossible to do,” Paul Grewal, Chief Legal Officer at Coinbase says, ” but requiring exchanges to engage in extensive data collection, verification, and retention about non-customers runs against core EU data protection principles of data minimization and proportionality.”
Secondly, the draft requires companies to inform the ‘competent AML authorities for every crypto transfer that exceeds 1k EUR from an unhosted wallet,’ even if there is no sign or suspicion of crime involved.
Patrick Hansen, head of strategy at UnstoppableDeFi argues that this is ‘an absolute violation of privacy rights.’ To him, the EU parliament should revert to the 1k EUR travel rule threshold which is in line with the FATF recommendations and the rules for traditional finance.
Thirdly, by letting the bill at hand slide, the crypto community will have opened up an opportunity for EU MPs to propose and ‘pass additional specific measures to mitigate the risks posed by transfers from or to unhosted wallets, including the introduction of possible restrictions’ as already stated in the draft law. This could allow lawmakers to place absolute restrictions on transfers between unhosted wallets, or worse.
That said, analysts are now calling out for crypto users in the EU to lobby their members of parliament to push for changes that will not stifle crypto innovation in the region.
“The EU crypto community has to help MEPs understand the impact of what they are proposing. Faryar Shirzad, a former executive at Goldman Sachs says, citing the move as ‘hugely harmful’. “The future of EU innovation is at stake and a transformational moment for economic freedom could be wasted. Write your MEP & Tweet.”