EU Lawmakers Back Regulation Threatening Unhosted Crypto Wallets, Defi Space

The Transfer of Funds Regulation (TFR) was supported by the European Parliament’s Committee on Economic and Monetary Affairs . The TFR, among other provisions, requires crypto service providers to implement strict anti-money laundering measures for cryptocurrency transactions to and from ‘unhosted” wallets.

The text, which requires crypto platforms keep, verify and share transaction data to financial authorities, was supported by the majority of ECON members. The procedures are applicable to transfers starting at EUR1,000. However, a German crypto news outlet BTC Echo reported that the procedures can be applied to transactions exceeding EUR1,000. A press release stated that crypto transactions often bypass threshold-based rules and the MEPs therefore decided to eliminate minimum thresholds and exemptions from low-value transfers.

The TFR will require that all crypto transfers include information about the source and recipient of any assets. Drafters want to make sure that suspicious transactions can be tracked down and blocked. The Parliament’s press service stated that the rules wouldn’t apply to person-to–person transfers, such as those made via bitcoins trading platforms or between providers acting on their behalf.

Additionally, crypto transaction processors will be able stop transactions that originate from or are sent to non-compliant suppliers. This is according to another provision that was also supported. The Civil Liberties, Justice and Home Affairs committee also approved the regulation. Official announcement indicating that the new rules were designed to stop illicit flows within the EU was the main motivation for lawmakers.

To prevent money laundering and terrorist financing, crypto-assets transfers must be tracked and identified.

Industry Views TFR Decision as a Setback for Europe’s Crypto Space

The draft will be moved to the trilogue stage if it is not challenged. This is the next phase of the EU’s legislative process. It must then be approved by the European Commission or the Council of the European Union. They are also discussing the Markets in Crypto Assets framework proposal ( MiCA). This framework proposal was advanced but did not contain controversial text that would have effectively banned proof-of-work currencies such as bitcoin.

The TFR paragraphs elicited negative reactions from the Old Continent’s cryptocurrency community, just like the PoW ban. Peter Grosskopf, cofounder of Unstoppable Finance, stated that the obligation to verify unhosted wallets would not only be a serious invasion in people’s privacy but also have serious implications for Europe’s defi ecosystem.

Industry watchers see these regulations as an attempt to ban unhosted accounts and limit the defi industry. They also warn that Europe’s future prospects as a crypto destination is in jeopardy. Many companies operating in the crypto sector would find it difficult to operate under the new rules. Grosskopf called the new rules a “huge economic and financial setback” for the crypto sector.