The EU AML Package Progressing towards Strengthened Anti-Money Laundering and Counter-Terrorism Financing Rules

In a rapidly changing financial landscape, combating money laundering and countering the financing of terrorism are critical challenges that require comprehensive regulatory measures. Recognizing this need, the European Commission introduced the ambitious Markets in Cryptoassets (MiCA) Regulation on July 20, 2021, aimed at enhancing the EU's anti-money laundering (AML) and counter-terrorism financing (CFT) rules. This groundbreaking legislative package comprises four key pieces of legislation, each addressing specific aspects of the cryptoasset and financial sectors.

The Components of the EU AML Package

1. EU "Single Rulebook" Regulation: This regulation provides comprehensive guidelines for customer due diligence, disclosure of beneficial ownership, the use of crypto-assets, and the introduction of new entities such as crowdfunding platforms. It also addresses the concerning issue of "golden" passports and visas, striving to ensure transparency and accountability.

2. The 6th Anti-Money Laundering Directive: With a focus on oversight and information sharing, this directive equips competent authorities with access to reliable information, including beneficial ownership registrations and assets in free zones. By promoting transparency and accountability, it strengthens the EU's AML/CFT framework.

3. The Regulation Establishing the European Anti-Money Laundering Authority (AMLA): This crucial regulation empowers the AMLA with supervisory and investigative powers, enabling it to ensure compliance with AML/CFT requirements across the EU. By establishing a dedicated authority, the EU aims to streamline AML efforts and foster cross-border cooperation.

4. Amendment of the EU Transfer of Funds Regulation (TFR): This amendment focuses on the information accompanying the transfers of funds and certain crypto-assets, facilitating effective tracking and monitoring of financial transactions. The TFR is a vital part of the broader crypto-asset regulatory framework, including the MiCA regulation.

Current Status of the EU AML and Debate

Since its proposal in 2021, the EU AML Package has been navigating the legislative process, and it has now reached the penultimate stage. Proposals 1 to 3 have been subject to extensive discussions in the Parliament, Commission, and Council of the European Union. Suggestions for modifications have been put forward, reflecting the diverse perspectives on crucial aspects such as customer due diligence, beneficial ownership definitions, and the treatment of third country jurisdictions.

To reach a consensus, the EU Parliament initiated trilogue discussions on April 17, 2023. Trilogues allow for informal debates among the Parliament, Commission, and Council, paving the way for agreed-upon changes and finalizing the legislative process. The topics under discussion are numerous, covering key operational aspects of the proposals.

The EU Transfer of Funds Regulation (TFR) and its Role in the Crypto-Asset Regulatory Framework

Apart from its role within the AML proposal, the EU TFR plays a vital part in the broader crypto-asset regulatory framework, including the MiCA regulation. The TFR regulates the EU's "Travel Rule," aiming to harmonize rules for crypto-assets and their service providers across the EU. Specifically, Crypto Asset Service Providers (CASPs) conducting crypto-asset transfers on behalf of clients must include information on the originator and beneficiary in the transfers. This rule applies regardless of the transfer's amount and ensures transparent tracking of crypto-asset transactions.

The trilogue discussions for the first three proposals began in May 2023, with official trilogue dates expected to take place between June and September 2023. Finalizing the legislative process with a vote in the EU Parliament is anticipated in the final quarter of the year.

Firms involved in crypto-assets should closely monitor the finalization of the MiCA and TFR regulations. As the regulations are finalized, relevant changes must be implemented to ensure compliance with the evolving AML requirements. The new obligations, including the inclusion of payer and payee details on fund transfers, will apply from January 2025.

While discussions on the remaining three proposals are still ongoing, firms are advised to wait for the final versions before taking any immediate actions. Preparing for implementation will require the adaptation or enhancement of systems, controls, policies, procedures, and technology, and dedicating resources to closely follow the proposals is a strategic move to stay compliant with the evolving regulatory landscape.

For further information about our services or to discuss these changes, contact our team to ensure your firm is prepared for the upcoming regulatory landscape.


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