The European Union (EU) has proposed to monitor cryptocurrency transactions by banning anonymous cryptocurrency wallets. According to reports, a proposal has been drafted by the European Commission, the Executive arm of the EU, which would impose an obligation on crypto wallet providers to release details of transactions, including the sender’s name, location, age and as well as the receiver’s details.
With the said proposal, the Executive Commission hopes to forestall instances of money laundering and terrorism financing via cryptocurrencies. In light of this, the commission’s proposal would ensure that crypto transactions are traceable both on the sender’s and receiver’s end. Crypto exchanges that provide custodial crypto services would be covered by the proposed law.
European Commission Exercises Caution to Avoid Overregulation
The Executive Commission’s proposal is part of the recommendations by the Financial Action Task Force (FATF), which already applies to bank transfers. While the commission sees the need for a regulation that will guide the transfer of crypto assets, it also noted that it is important not to inundate the industry with numerous regulations. This has been the argument of the US SEC Secretary, Hester Pierce, against excessive regulation. The secretary claimed that if regulatory pressure increases, it may likely stifle innovation in the space.
South Korean Regulators Adopt Similar Approach
Interestingly, the EC’s proposal is similar to the directive issued by the Financial Service Commission (FSC) in South Korea. The FSC ordered all crypto exchanges in the country to liaise with banks in order to issue real name-based accounts. As expected, leading crypto exchanges have complied with the directive.
However, smaller exchanges are in a dilemma as they are yet to find South Korean banks willing to partner with them. With its directive, South Korea’s FSC seeks to curtail illegal activities that are carried out with the help of cryptocurrencies. To protect banks against liability for fraudulent transactions, the FSC issued a ‘no notice’ guideline which empowers government officials to absolve banks of any form of culpability in the event of illegal transactions.
While the EU is actively involved in the regulation of crypto, it has also been making active efforts on the idea of a Digital Euro through the European Central Bank. The ECB is also considering the implication of central bank digital currencies (CBDCs). In a survey conducted by the bank, the major issues raised against CBDCs are privacy, extra costs, vast adoption, and a few others.
A member of the ECB’s Executive Board, Fabio Panetta, however, argued that privacy concerns were unfounded, instead a digital Euro would protect users’ privacy. Panetta also said it was necessary to address the soaring popularity of cryptocurrencies with the digital Euro.
In a different report, the ECB considered the implication of not issuing a CBDC, saying the Euro may likely lose its sovereignty if it stalls on a CBDC. Meanwhile, the President of the bank, Christine Lagarde noted that a Digital Euro plan would take the bank four years or more.