Early yesterday, the European Commission regulators declared that they were “banning anonymous cryptocurrency wallets” as part of a money laundering crackdown. The shockwaves rippled through the markets and probably caused some near heart attacks for a few crypto holders.
Thankfully, it soon became clear that the EU had not been quite clear about the substance of its proposed regulation. It is one of four proposals intended to “to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules,” as its press statement says.
The statement also says:
“At the heart of today’s legislative package is the creation of a new EU Authority which will transform AML/CFT supervision in the EU and enhance cooperation among Financial Intelligence Units (FIUs). The new EU-level Anti-Money Laundering Authority (AMLA) will be the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules. AMLA will also support FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.
In particular, AMLA will:
- establish a single integrated system of AML/CFT supervision across the EU, based on common supervisory methods and convergence of high supervisory standards;
- directly supervise some of the riskiest financial institutions that operate in a large number of Member States or require immediate action to address imminent risks;
- monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
- support cooperation among national Financial Intelligence Units and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.”
Unfortunately, Mairead McGuinness, the EU Commissioner for Financial Services, tweeted that the measure “will ban anonymous crypto wallets and make sure that crypto-asset transfers are traceable.” But, as David Z Morris writes, “The statement from McGuinness is straight-up FUD.”
The EU is not proposing a ban on anonymous wallets; instead it is proposing tighter rules on money service providers, such as exchanges or custody services. Morris explains, “In short, the ban would impact the crypto equivalent of Swiss bank accounts, not the use of crypto as cash.”
What Morris also pointed out is important: media outlets reported McGuinness’s tweet without checking the veracity. As a consequence crypto prices slumped, although they have recovered since. However, he does say, and this is important: the EU knows it can’t ban anonymous wallets, so why would a Commissioner tweet misinformation? He suggests, “by obfuscating the difference between custodial wallets and self-custody software, they may hope they can mislead some portion of the public into thinking that custodial accounts are the only kind that exist.”
The upshot of all this is “if you’re willing and able to self-custody, which you should be doing anyway, you can still hold and spend crypto anonymously.