The EU moves toward creating a new AML regulator to oversee crypto

    16 Aug 2022

    Targeting anti-money laundering, the European Union is building a new regulator — “Anti-Money Laundering Authority” (AMLA) — that will direct oversee crypto businesses. Many negotiations remain before the AMLA launch, but all signs are that it’s underway.

    The EU is set to create a brand new regulator focused on direct crypto oversight. Although the crypto industry’s attention has been drawn to the Markets in Crypto Assets regulation and the controversial Transfer of Funds Regulation, these documents are part of a broader package of EU anti-money laundering (AML) policy that will have major implications for all financial institutions.

    Last July, the European Commission released its proposal for the Sixth Directive AML/CFT or AMLD6. The European Council released its version this July. European Parliament is set to take it up following the current August vacation. Once parliament passes its version of the regulation, the three bodies will enter into largely opaque negotiations called trilogues.

    The focus of the new legislation is on the creation of an EU-wide AML regulator. Despite the upcoming negotiations, there seems to be minimal disagreement between the legislative bodies that such a regular is needed and that it should have direct oversight over crypto asset service providers in the EU.

    Lately, European Parliament has been the most aggressive of the three bodies in terms of calling for the regulation of crypto. Thus, it is unlikely to oppose giving the future regulator direct supervision over crypto.

    Titled “Anti-Money Laundering Authority,” or AMLA, the regulator will monitor at least “high-risk” crypto firms as financial servicers directly, per the Commission and Counsel versions.

    “EU-level supervision consisting of a hub and spoke model – i.e., supervisor at the EU level competent for direct supervision of certain financial institutions (FIs), indirect supervision/coordination of the other FIs, and a coordination role for supervising the non-financial sector as a first step,” a parliamentary briefing said.

    The international body will be a major shift for the EU. Previous AML directives (from 2015 and 2018) established standards for member nations to collect and make available certain data, like information about beneficial ownership of corporations. Those registries are a good example of the disparate adoption of the regulations. Even among the countries that provide access to corporate information for free, the information available varies widely.

    The opacity behind certain corporate registries allowed crypto firms like Binance to tout Maltese regulation for years.

    AMLD5 established that member states should treat crypto exchanges as financial institutions. But that implementation was left up to the member states. There is recourse for the EU bodies to pursue member states, but the overall reporting requirements don’t lead to a union body.

    The timeframe for implementation will hinge upon negotiations among European Parliament as well as subsequent trilogues involving the commission. Implementation of the regulation – including staffing of AMLA – will take years. But there seems to be little doubt that such a regulator is indeed coming.

    “It’s critical to ensure that the AMLA will have sufficiently skilled staff that can deal with state-of-the-art technologies required for interacting with decentralized networks,” the EU Crypto Initiative, a trade association, told The Block.

    Last month, European authorities reached a milestone deal to regulate the trading of crypto assets in the bloc, to rein in what lawmakers call the “wild west” of financial markets. EU member states and the European Parliament on July 1 settled the terms of rules that aim to protect consumers and increase transparency from companies while allowing the nascent market to flourish.

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