Although the Markets in Crypto Assets directive and the Transfer of Funds Regulation have garnered significant attention within the cryptocurrency industry, these are merely parts of a broader EU anti-money laundering (AML) policy framework that will affect all financial institutions.

A new regulatory body for cryptocurrencies is being established by the European Council, European Commission, and Parliament. This new authority will be known as AMLD6 and will hold direct oversight over the cryptocurrency sector.

In July 2021, the European Commission proposed the AMLD6 or Sixth Directive on AML/CFT. One year later, the European Council released its version of the directive. It is scheduled for discussion by the European Parliament after the August recess. The three bodies will then enter into trilogues following their respective approvals.

Is EU Crypto Regulation Necessary?

The creation of an EU-wide AML regulator is a critical component of this new legislation. There appears to be little controversy regarding the necessity of such a body and its direct control over EU-based crypto service providers, despite ongoing discussions within legislative bodies.

Differing from earlier AML regulations that only provided frameworks for member states to collect and share information, AMLD6 will oversee crypto service providers, particularly those considered high-risk. It is expected to curb potential jurisdictional arbitrage within the region.

From the perspective of the European Parliament, the new system will feature a hub-and-spoke model involving EU-level supervision for certain financial institutions (FIs) with direct oversight, indirect supervision/coordination of other FIs, and a coordination role for non-financial sector supervision.

The Markets in Crypto Assets and Transfer of Funds laws, which apply to all financial institutions within the bloc, will have different focuses compared to AMLD6. According to press releases, the current legislation addresses broader issues.

Recent Developments

Recently, the EU has taken a stringent approach towards crypto regulations. The European Parliament approved anti-anonymity measures that would increase transaction costs and complexity between unhosted wallets and exchanges, potentially rendering certain transactions impossible. Even though a ban on Proof-of-Work mining was defeated in parliament, the European Central Bank anticipates such a measure might eventually be imposed due to environmental concerns.

This marks a significant shift for the EU. The 2015 and 2018 AML directives, particularly four and five, required member states to gather specific data, including beneficial ownership details of corporations.