EBA to Back Crypto Banks Under Certain Conditions
The European Banking Authority (EBA) has begun public consultations for amendments to the "Guidelines on money laundering and terrorist financing risk factors" while revealing future plans to work in concert with crypto-asset service providers (CASPs).
Firstly, a slice of background:
Following the crash of the American crypto-supporting Silicon Valley Bank and Signature, it was decided to put them up for sale. The tender was open only to prospective buyers willing to break off ties with digital companies. However, no such interested parties came forward. So for now, the destiny of these bankrupt institutions hangs in the balance.
At the same time, Hong Kong has urged banks to take a visionary approach and back the crypto sector, and China ramped up cooperation with Hong Kong's financial institutions working with digital companies.
In response to these differing strategies towards cryptocurrencies, Europe has opted for a middle path. The European Banking Authority is preparing to devise a rulebook for banks providing digital services in order to minimize the risks of money laundering on the one hand and to grant them the legal rights to operate within the EU on the other.
The EBA has commenced public discussions concerning the terms and conditions for CASPs operating within Europe. This consultation period is set to run until August 31, 2023.
European regulators' plan: What are the new rules?
The EBA considers that CASPs, just like other credit and financial institutions, are exposed to money laundering risks. However, they are particularly susceptible due to their reliance on new technologies, the capacity for instant global transfer of digital assets, and their inclusion of privacy-enhancing features within their services.
To counter these risks, the EBA suggests laying down universal European standards for these providers.
To that end, they recommend:
- Revising client assessment procedures by applying more stringent verification criteria and conducting preliminary checks on their financial status.
- Limiting transactions using wallets with unidentifiable owners.
- Prohibiting the transfer and storage of any anonymous cryptocurrencies (such as Monero, Dash, Zcash, Verge, etc.).
- Removing companies that utilize crypto mixers from the list of potential CASP clients.
Moreover, they intend to roll out special licensing for banks keen on supporting digital ventures.
At this stage, these amendments are only advisory for Crypto-Asset Service Providers (CASPs), delineating factors that signal a heightened risk of money laundering.
The European Banking Authority (EBA) is welcoming feedback from companies and individuals interested in this issue until the 29th of June, 2023. Moreover, on June 7, 2023, the Authority held a virtual public consultation to debate the proposed document. The Commission has pledged to take into account all suggestions presented during these consultations, though they have not released any official details regarding the amendments as yet.
If this proposal is adopted, no cryptocurrency exchange that supports anonymous cryptocurrencies will be eligible to partner with any European bank.
Without Hong Kong's approach, which permits crypto platforms to use banking services, the outlook for privacy coins would seem rather bleak.
