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- 1 EBA has recently reformed guidelines around crypto asset service providers (CASPs).
- 2 The main aim of these amendments is to reduce the vulnerability to money laundering and terrorist financing.
On January 16, 2024, the European Banking Authority (EBA) of the European Union shared extended guidelines on money laundering (ML) and terrorist financing (TF) with crypto asset service providers (CASPs).
The newly formed guidelines point to ML/TF risk factors and mitigating measures that CASPs should consider, representing an important step towards the EU’s fight against financial crime.
Objectives of Recent Amendments
It aims to help CASPs identify these risks by providing a non-exhaustive list of factors. It can indicate its exposure to higher and lower levels of ML and TF risks due to its customers, products, delivery channels and geographical locations.
CASPs will be able to develop an understanding of their customer base using these risk factors. It also helps in identifying the vulnerable parts of the businesses for ML/TF.
Guidelines also help users understand how these CASPs should adjust their mitigating measures, involving the use of blockchain analytics tools.
The guidelines extend to the other segments of the financial segment and also include guidance addressed to other credit and financial institutions that have CASPs as their customers or that are exposed to crypto assets.
The risk for ML and TF is increased when credit and financial institutions interact with the providers of crypto-asset services, which are unauthorized under Regulation 2023/1114.
Purpose of Extending EU Regulations
With the extension of the scope of the ML and TF risk factors guidelines, the European Banking Authority emphasizes the approach that CASPs across the EU take. It should adopt these guidelines when implementing a risk-based approach to anti-money laundering and countering the financing of terrorism as part of its business.
Important Dates for the Implementation of Guidelines
The deadline for the competent authorities to report their compliance with the guidelines will be two months after the publication of the translations into the official EU languages.
The amended guidelines will be applicable December 30, 2024, onwards.
Legal Background Guiding Various Activities
Directive (EU) 2015/849 puts the risk-based approach at the center of the AML and CFT regimes. It complements the mandate given to the EBA under Articles 17 and 18(4) of Directive (EU) 2015/849 on customer due diligence.
Factor credit and financial institutions are required to assess the money laundering and terrorist financing risks associated with individual business relationships and occasional transactions.
Besides, Article 38 of Regulation (EU) 2023/1113 reforms Article 18 of Directive (EU) 2015/849 and mandates the European Banking Authority to issue guidelines on the risk variables and risk factors in CASPs. These should be considered while creating a business relationship or carrying out any transactions in crypto assets.
It includes transactions originating from or directed to self-hosted addresses. It also added provisions to the existing Article 19b of Directive (EU) 2015/849. It mandates clarifying the due diligence required in high ML and TF vulnerable situations.
Finally, Regulation (EU) 2023/1114 targets crypto asset services and activities within the EU regulatory scope. To ensure that CASPs become subject to the European Union’s AML/CFT obligations and supervision.
It ensures the alignment of AML/CFT regulations with international recommendations and that the associated ML and TF risks with the sector are effectively addressed and managed.
European Union Guidelines for Stablecoin Issuers
The EBA recently conducted a public hearing session to discuss the proposals for the operational guidelines intended for issuers of stablecoins within the upcoming regulatory framework, “Markets in Crypto Assets (MiCA).”
In this event, officials encouraged the audience and industry operators to contribute to the rule formulation. In 2023, the EU marked a historic moment by finalizing a comprehensive framework to regulate cryptocurrencies in one of the major jurisdictions. It will be fully operational in December 2024.
Moreover, the EU regulatory authorities, including the EBA and the ESMA, have engaged in in-depth consultations on the rules and guidelines intended for issuers and cryptocurrency companies, as MiCA requires.
The EBA, in particular, has taken on the task of developing a unified set of rules following MiCA for stablecoin issuers.
Summary: Proposals from the EBA
In a recent hearing, EBA officials carefully examined the proposal guidelines for ART issuers. MiCA defines the category as cryptocurrencies to maintain their stability by referring to the value of more official currencies or assets.
The hearing focuses on the initial proposals of the EBA for the internal governance of companies issuing stablecoins.
The EBA plans to organize further similar hearings soon. The feedback generated during these consultations will define the final regulation.
FAQs
What is EBA required to do?
The EBA is required to ensure the transparency, integrity and orderly functioning of financial markets.
What are the objectives of the EBA?
It works to prevent the use of the financial ecosystem for money laundering and terrorist financing.
Amanda Shinoy is one of the few women in the space invested knee-deep in crypto. An advocate for increasing the presence of women in crypto, she is known for her accurate technical analysis and price prediction of cryptocurrencies. Readers are often waiting for her opinion about the next rally. She is a finance expert with an MBA in finance. Quitting a corporate job at a leading financial institution, she now engages herself full-time into financial education for the general public.
