On 28 April 2022, a first political trilogue on the proposed regulation on information accompanying transfer of funds and certain crypto-assets (Transfer of Funds Regulation) took place between the European Commission, the Council and the European Parliament. By way of background, the proposed legislation seeks to implement in European law the so called “travel rule” for crypto-assets, originating from the Financial Action Task Force (FATF) recommendation to accompany the transfer of crypto-assets with information on the originator and on the beneficiary of each transfer (see our earlier blog note here).
According to the Presidency’s note circulated following the meeting, the first political trilogue ended in no compromise, yet the parties expressed their willingness to try and arrive at an agreement before the end of June 2022, i.e. before the end of the French Presidency’s term. Some of the substantive points discussed in this first political meeting included issues related to data protection, inclusion of references to targeted European restrictive measures, transfers to non-compliant supplier and risk mitigation measures, as well as the issue of transfers to and from unhosted wallets.
Arguably, the latter turned out to be the most contentious point of the discussions. By way of background, the European Parliament proposed in its position that, in cases of a transfer of crypto-assets made from or to an unhosted wallet, the provider of crypto-asset transfers should collect information from its customer both on the originator and the beneficiary, it will also be required to verify the accuracy of information with respect to the originator or beneficiary behind the unhosted wallet, and ensure that the transfer of crypto-assets can be individually identified. Any such transfers exceeding EUR 1,000 should be reported by the provider of the crypto-asset transfer of the beneficiary to a competent authority. The delegation of the European Parliament stressed in the course of the trilogue, discussions that this issue remains of critical political importance for the institution. Conversely, the Presidency supported the Council’s position that, while introducing the notion of “unhosted wallets” to the text, it does not impose an identity verification requirement comparable to the parliamentary proposals. The Commission appeared aligned with the Council’s position. Specifically, it noted that the requirements proposed by the Parliament would go over and beyond the FATF recommendations and that they might be impossible to implement from a technical point of view. That said, the Commission had been tasked to prepare, in advance of the next trilogue round, an analysis of solutions implemented in other jurisdictions.
The next trilogue discussion will take place on 14 June 2022.