Attendees at the Paris Blockchain Week Summit learned Wednesday that the crypto sector is still reeling from a string of votes in the European Parliament that some warned could prove regulatory overkill.
Recent European Union plans to reduce the energy footprint of proof-of-work technology – which some feared would amount to a bitcoin (BTC) ban – were defeated in March by the European Parliament. However, a second, equally contentious anti-money laundering measure did pass and may now become law if governments sign-on.
Parties facilitating crypto transactions would be required to identify participants under a planned expansion of existing banking measures known as the travel rule. EU legislators want this to apply even to the smallest payments or to unhosted wallets, where the asset is held by a private individual rather than a regulated exchange.
Proponents of the travel rule, including lead lawmaker Assita Kanko, have argued that it will help reduce crime and could spur innovation in a sector that values creativity.
If the banking sector, which crypto people believe is boring and old, can survive the travel rule… why can’t the very chic, cool crypto people? she told CoinDesk shortly after the measure was approved by her committee on March 31. They might be able to work it out… I speculate I’m telling them to try.
However, some in Paris argue that the existing rule, which requires institutions such as banks to report any suspicious-looking payments to authorities, doesn’t work well even in the traditional financial sector – and is even worse suited to blockchain-style technology.
According to Hedi Navazan, head of compliance for Crystal Blockchain, the rules would require crypto exchange providers to “provide a full report to the authorities… when they see an unhosted wallet is involved, without even considering the threshold.”
That would mean that the financial intelligence units that investigate suspected money laundering cases would be bombarded with data known as suspicious activity reports, even though they already don’t have the volume to process the abundant information they now acquire from banks.
This is consistent with findings by the Law Commission of the United Kingdom, which complained in June 2019 that “too many low-quality” money laundering reports were sent to authorities, “undermining the complete process.” Even the European Banking Authority, the regulator of the EU, has indicated concern regarding a “tick-box” approach in which financial institutions simply follow procedures rather than identifying risks.
The EU’s approach also fails to recognize that transparent blockchains allow payments to be traced, according to Navazan, and may force exchanges to abandon transactions with unhosted wallets entirely.
However, some have expressed concern about far-reaching consequences.
According to Joshua Ellul, director of the University of Malta’s Centre for Distributed Ledger Technology, recent decisions regarding crypto payments were “malinformed.”
Crypto is used for this [money laundering] activity just like cash, Ellul said in an interview shortly after the European Parliament vote, but he cautioned that lawmakers were “rushing to a solution.”
If you stifle it too early, operators in space will simply move to another area, he explained.
He is not the first to warn that an industry confronted with onerous regulations may simply leave the EU. Others, on the other hand, are more optimistic, warning that regulation is unavoidable – and that responding constructively to it would at the very least silence incumbent banks and others skeptical of crypto newcomers.
The EU’s decision might hurt the industry in the short term, because if someone doesn’t want to give his wallet information and moves elsewhere, then, yeah, you might suffer, Michael Amar, co-host of the summit, told CoinDesk.
However, if you want to be mainstream, it has to be regulated, he says. We understand that it must be kosher… Let us not make an excuse for those who do not want the industry.
