On Tuesday, 28 March 2023, the European Parliament’s Economic and Monetary Affairs Committee (ECON) adopted its position on the proposed anti-money laundering and counter-terrorism financing legislative package that was published by the European Commission (Commission) in July 2021. In our earlier blog post, we provided a general overview of the measures adopted where we flagged that one of the key elements of the set of amendments voted in the ECON committee is an introduction of much stricter AML/CFT rules for crypto-market participants. Whilst the publication of the final ECON report is pending, this note summarises key provisions relevant to crypto-assets and reflected in the final set of compromise amendments that were subject to the vote:
- Scope: ECON committee maintains the Commission’s proposal to bring within the scope of the proposed Regulation on prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLR), the crypto-asset service providers (CASPs) as defined in the upcoming Markets in Crypto-Assets Regulation (MiCA), but it also proposes to classify them as a type of in-scope financial institution. In addition, Members of the European Parliament (MEPs) propose to include within the scope of obliged entities a new category of “NTF platforms”, defined as “persons providing services for the sale and purchase of unique and non-fungible crypto-assets”.
- Extension of AML/CFT requirements to DAO/DeFi arrangements: in accordance with the ECON committee position, Decentralised Autonomous Organisations (DAO) and other Decentralised Finance (DeFi) arrangements should be subject to EU AML/CFT requirements to the extent that they perform or provide crypto-asset services which are “controlled directly or indirectly, including through smart contracts or voting protocols, by identifiable natural and legal persons”. In such cases, such DAO/DeFi arrangements should also be considered CASPs within the meaning of MiCA.
- AML/CFT obligations extending to metaverse: the ECON members propose that obliged entities should continue to comply with the AML/CFT requirements when operating in virtual worlds and in relation to the activities and operations covered by AMLR.
- Due diligence requirements: in accordance with the proposed amendments, financial institutions (including CASPs) will be required to conduct customer due diligence (CDD) checks when being involved in or carrying out an occasional transaction involving crypto-assets that amounts to EUR 1,000 or more.
- Enhanced CDD measures for correspondent relationships with non-EU entities providing crypto-asset services: MEPs propose that CASPs should be required to undertake enhanced CDD checks, in accordance with detailed specifications set out in the draft legislation and in addition to the standard CDD checks, in respect of correspondent cross-border relationships involving the execution of MiCA-defined crypto-asset services with a respondent entity established outside the EU.
- Enhanced CDD measures for transactions involving self-hosted addresses: MEPs propose that CASPs must have in place appropriate risk management systems, including risk-based procedures, to identify the risk of money laundering and terrorism financing, and the risk of non-compliance or evasion of targeted financial sanctions associated with crypto-asset transactions directed to or originating from a self-host address.
- Prohibition of correspondent relationships with unregistered or unlicensed entities providing crypto-asset services: the ECON amendments would prohibit financial institutions from entering into or continuing correspondent relationships with unregistered and unlicensed entities providing crypto-asset services; this would include entities that are not established in any jurisdiction or not having a central contact point or substantive management presence in any jurisdiction. In addition, a newly established Anti-Money Laundering Authority (AMLA) would be required to set up and maintain and indicative and non-exhaustive public register of shell banks and unregistered and unlicensed entities providing crypto-asset services.
In terms of the next steps, following the formal approval of the ECON position by the European Parliament’s plenary vote, the co-legislators and the European Commission will begin the so-called trilogue negotiations that would lead to the adoption of the final AMLR text. These are expected to begin under the leadership of the current Swedish Presidency of the Council, but are unlikely to conclude during its term.