EU Tightens Crypto Regulations with New Due Diligence Laws

Stricter Regulations for Crypto Asset Managers

The European Parliament has approved comprehensive legislation imposing stricter due diligence and identification requirements on crypto asset managers. These new laws mandate reporting of suspicious activities to relevant authorities, significantly impacting centralized cryptocurrency exchanges and extending to sectors such as gambling services and football clubs.

Establishment of a Unified Rulebook

A unified rulebook is now in place for all 27 EU member states, alongside the creation of an anti-money laundering authority based in Frankfurt. This authority will oversee the implementation of regulations, concentrating on entities deemed riskiest by the EU. The legislation introduces enhanced scrutiny through tougher due diligence and mandatory identity checks.

Reporting Obligations for Financial Entities

Under the new rules, banks, asset managers, and real and virtual estate agents are required to report suspicious activities to Financial Intelligence Units and other authorities. Despite these measures, crypto policy advocates argue that the regulations are more stringent for their sector compared to others.

Exemptions and Frameworks

Interestingly, the EU's new regulations do not prohibit anonymous crypto wallets or self-custodial payments. These rules apply to crypto-asset service providers governed by the Markets in Crypto-Assets Regulation (MiCA), effective since June 2023.

Access to Beneficial Ownership Information

The legislation grants immediate and unrestricted access to beneficial ownership information to individuals and organizations with a "legitimate interest," including journalists and civil society groups. This information will be stored in national registries, interconnected at the EU level, detailing the entities that own or control companies.

Legislative Process and Next Steps

Initially agreed upon politically in January, the package underwent a joint parliamentary committee vote in March before receiving final approval. The next step is formal adoption by the EU Council, comprising representatives from the member states.