EBA Raises Vigilance Against Crypto Money Laundering

Key Points:

• The European Banking Authority (EBA) wants to expand money laundering guidelines to cryptocurrency businesses and banks that do business with them.
• The intentions come after a string of crackdowns on crypto technologies, which politicians fear may be used to conceal illegal or terrorist funds.
• Money laundering concerns may increase for providers of crypto asset services such as exchanges and wallets.

The European Banking Authority (EBA) began a public consultation today on proposed changes to its Guidelines on money laundering and terrorist financing (ML/TF) risk factors.

The ideas, which are out for public comment until August 31, come after a succession of crackdowns on crypto technologies that may improve internet anonymity but that politicians fear might be used to conceal illegal or terrorist money.

The proposed amendments broaden the scope of these Guidelines to include crypto-asset service providers (CASPs). The consultation will be open until August 31, 2023.

CASPs, like other credit and financial institutions, are vulnerable to ML/TF concerns. These risks may be heightened for CASPs as a result of, for example, the adoption of novel technology, quick transfers of crypto assets throughout the globe, and services with privacy-enhancing features.

“The EBA is proposing to amend its ML/TF risk factors guidelines to set common, regulatory expectations of the steps CASPs should take to identify and mitigate these risks effectively,” according to the EBA.

The use of mixers and tumblers, zero-knowledge proofs, and privacy coins suggests a greater risk, according to the guidelines. Customers that have several accounts and make transactions to self-hosted wallets that are not run by a regulated CASP or are situated in ostensibly unregulated abroad countries face the same risks.

The changes include new sector-specific guidelines for CASPs that emphasize variables that may indicate a CASP’s exposure to greater or reduced ML/TF risk. CASPs should consider these aspects when assessing the ML/TF risk of their company and clients at the start and during the business relationship. The Guidelines also outline how they should modify their customer due diligence (CDD) to account for such risks. Additionally, the amendments provide advice to other credit and financial institutions on the risks to consider when entering into a commercial partnership with a CASP or otherwise being exposed to crypto assets.

Banks interested in accepting crypto customers should also evaluate their regulatory licensing and ownership, according to the advise.

In recent months and years, the European Union has attempted to address money laundering threats associated with covert crypto transactions. New money laundering regulations may limit transactions using self-hosted wallets where the owner cannot be recognized and may even outright prohibit anonymous currencies. The EBA also underlined additional dangers for organizations that adopt crypto-style distributed ledger technology in a March recommendation.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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