EU Banking Watchdog Seeks to 'Harmonize' AML Measures With Extension to Crypto Firms

Jimmy Aki

Last updated:

January 16, 2024 01:24 EST | 2 min read

Source: AdobeStock/Grecaud PaulEurope’s leading banking entity, the European Banking Authority (EBA), has extended its regulatory reach to cover the cryptocurrency space.

In a blog post dated January 16, the EU banking watchdog announced the release of new guidelines focusing on money laundering and terrorist financing risk factors within the crypto space.

European Banking Authority has extended its Guidelines on money laundering and terrorist financing risk factors to #crypto-asset service providers (#CASPs).

— Andrei Burz Pinzaru (@aburzpinzaru) January 16, 2024

Under these guidelines, crypto asset service providers (CASPs) will be required to diligently adhere to existing financial regulatory standards, such as implementing know-your-customer (KYC) measures.

This is aimed at combating anti-money laundering and terrorist financing activities within the burgeoning crypto industry.

The EBA stated that the objective of this move is to “harmonize” existing approaches, ensuring that service providers in the crypto space do not become preferred channels for illicit activities due to their close proximity with traditional counterparts.

The EU regulator also noted that CASPs can be abused for financial crime purposes, including for money laundering (ML) and terrorist financing (TF).

“The risks of this happening can be increased, for example, because of the speed of crypto asset transfers or because some products contain features that hide the user’s identity. Therefore, it is important that CASPs know about these risks and put in place measures that effectively mitigate them,” the EBA added in its press release.

Given this, all CASPs operating within the European bloc have been given a two-month window to notify the premier banking watchdog of their compliance with the stipulations.

However, the enforcement of these guidelines will take effect on December 30, 2024, once they have been translated into all official European languages. This activation period aligns with the expected launch date for the Markets in Crypto Asset (MiCA) legislation.

Prior to this development, the EBA had published guidelines for AML/CFT supervisors of CASPs, outlining the inherent risks associated with their operations.

Additionally, the top European financial entity is actively working on a set of draft guidelines that are expected to constitute the ‘Travel Rule Guidelines.’

These guidelines will mandate that all digital asset service providers, including exchanges, disclose user identities whenever digital assets are deposited into or withdrawn from their platforms.

Legacy Financial Institutions Also Subject to New EBA Guidelines

While the US government has been hesitant to establish clear regulatory frameworks for the use of crypto assets within its borders, the European bloc has not shied away from the responsibility.

The EU region successfully finalized its landmark Markets in Crypto Assets (MiCA) legislation last year.

The region has stated that its newly released guidelines will tie into its expanding regulatory map, aimed at eradicating all forms of illicit financial practices and bringing rationality to the crypto space.

According to the EBA, all legacy financial firms and credit facilities that engage with digital asset service providers or customers exposed to virtual assets will also fall under the purview of its new guidelines. The banking watchdog attributed this to the interdependence of both ecos.