This week, the European Union (EU) published ‘Crypto-assets: Key developments, regulatory concerns and responses.’ The new study reveals a number of areas of concern EU regulators face regarding the use and expansion of cryptocurrencies in the market. As such, the document points out various “loopholes” in the current regulations and lists different solutions to close these gaps across the EU.
Notably, the study focuses primarily on how nefarious actors could use cryptocurrency to launder funds. Importantly, the issuance of the report follows a string of complaints filed by various EU regulatory bodies regarding the appearance of unexplained capital in the market. These countries believe, in part, that cryptocurrencies provide criminals a technical solution for advanced money-laundering operations.
Crypto-Assets: Key Developments, Regulatory Concerns, and Responses
Principally, the document points out several blind spots in the EU’s current regulatory framework and how they could be exploited. Regulators believe it’s necessary to map out these emerging techniques to better understand how to create effective countermeasures. Ironically, most of the concerns listed fall under the scope of normal crypto activities, rather than money laundering schemes.
Mined Coins – Crypto-Assets
Critically, the summary described newly mined coins as one of the most pressing issues facing the union. Regulators believe criminals now operate large mining operations built from illegal gains. The report describes a scenario where crooks use large mining operations to mint new currency outside the reach of regulations. Simply put, when transaction validators (nodes) on a blockchain add another block successfully, they receive a reward for their efforts. This reward comes in the form of newly minted cryptocurrency. In this manner, regulators suggest criminals are able to convert funds into “clean” crypto. The new coins are then converted into fiat currencies globally.
Crypto exchanges are another soar point for regulators in Europe. The study recommends that regulators conduct intensified survey activities of these firms. Notably, they believe there are additional ways exchanges allow users to anonymize their ill-gotten gains. This section also extends into crypto financial service providers such as digital asset custodians, or lending services.
EU regulators seek to broaden the scope of the definition of virtual assets to include a host of newly developed financial instruments. Specifically, security tokens and stablecoins are listed. This is not surprising as the EU STO sector experienced considerable growth over the last year, with many nations bidding to become the EU’s STO epicenter.
The report also suggests utilizing advanced tracking software to reveal the identity of both the sender and receiver of stable coin transactions. Lastly, the study takes a look at the cross-border nature of crypto-assets and how this magnifies their money laundering capabilities.
European AML watchdog
The report concludes that the EU must create a new AML regulatory body to monitor the crypto space. The group would follow through on closing the loopholes listed. Regulators envision a hi-tech team, composed of the EU’s top IT personnel, capable of analyzing the money laundering potential new technologies inevitably introduce.
Central Bank Crypto Currencies
The timing of the Crypto-assets: Key developments, regulatory concerns and responses report reveals much about the intention of its publishers. Many of the EU states announced plans to begin the issuance of their own Central Bank Digital Currency. At the time, many people wondered why anyone would use these currencies over the established coins in the market today. Unfortunately, it may be the only legal option.
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