Crypto-regulatory affairs: EU makes progress on travel rules negotiations

EU progress in travel rules negotiations

On November 29, 2021 the ambassadors in the EU Council agreed on the mandate for negotiations with the EU Parliament on the regulation of information accompanying the transfer of cryptoassets. Currently, payment service providers that deal in fiat currency must collect and share information about the sender and beneficiary of every wire transfer they process. This is what the Financial Action Task Force (FATF) calls the Travel Rule (FATF Recommendation 16). In June 2019 The FATF has updated its guidelines apply its Travel Rule standards to cryptoassets. With this proposalThe EU is making progress in expanding the scope of regulations that will apply to crypto-assets.

EU Ambassador Andrej Šircelj said that “this agreement is an important step towards closing loopholes in our financial systems that are maliciously used by criminals to launder illegal profits or finance terrorist activities.” Crypto-assets are increasingly at risk of being exploited for money laundering and criminal purposes, and I am pleased that the Council was able to move quickly on this urgent proposal.”

In practice, the crypto-asset business will have to provide information about the originator and the user that will track the crypto-asset transfers. This also applies to crypto-asset businesses that process EU-to-non-EU transfers. This information will be provided “before or at the time of completion of the transaction” by the client of the crypto-asset business.

If the parties involved in the transaction are suspicious or subject to sanctions, the proposal states that: “payment service providers of payers and payees, as well as intermediary payment service providers, take appropriate measures to freeze certain funds or to comply with specific restrictions regarding certain transfers of funds.” The document emphasizes that personal data collected to comply with this regulation should not be processed for commercial purposes. Furthermore, the negotiations should include requirements regarding data protection and sharing.

The proposal also clarifies the exemption for a certain number of blockchain network participants. Indeed, “persons who are only ancillary participants, who do not provide or actively facilitate the transfer of crypto-assets, such as persons who only provide Internet services, cloud services, gateways to connect to a distributed ledger network (e.g. called a ‘non-hosted wallet ‘) or nodes that help confirm transactions, should not fall within the scope of this Regulation.” However, when a crypto-asset business receives or transfers funds from or to a private address unrelated to the business, the crypto-asset business “will need to obtain information about both the originator and the beneficiary, usually from its client.”

Schedule a demo to learn more about how your business can use our blockchain analytics solutions for travel compliance. For more information on the impact of the Travel Rules on the industry, download Elliptic’s Travel Rule Toolkit.

Reports from India suggest that the government will regulate rather than ban crypto-assets

A bill seeking to ban all private cryptoassets in India has been tabled in the Lok Sabha, India’s parliament, as published in the official bulletin November 23, 2021 A week later, the creator of this bill, former finance minister Subhash Gard, he said observers misinterpreted it. In fact, he believes that “the future of currency is in digital currencies”. Local reports suggest that investors will be required to declare their holdings of cryptoassets and be given time to transfer their funds to soon-to-be-regulated exchanges. In parallel, the Reserve Bank of India is working on a framework for central bank digital currency launch experiment (CBDC). This would also be covered by the bill pending its introduction in the Lok Sabha, as detailed in the bulletin. These announcements follow two significant regulatory developments in cryptoassets covered by Elliptic in November 2021. here and here.

To learn more about how your business can use Elliptic’s tools to comply with AML/CFT requirements in anticipation of new requirements in India, schedule a demo.

SEC cracks down on crypto asset scams that cost investors more than $7 million

US Securities and Exchange Commission (SEC) on December 2, 2021. the accused is a citizen of LatviaIvars Auzins, with a scam involving cryptoassets. The charges relate to two separate crypto asset offerings that defrauded hundreds of retail investors. These schemes operated in 2018 and 2019, but Auzins failed to register with the SEC and comply with anti-fraud requirements. It is estimated that at least $7 million of the funds raised through these offerings were embezzled by Auzins. The head of the SEC’s Cyber ​​Unit, Kristina Littman, stated: “[w]They will continue to identify and prosecute those who seek to victimize investors in the digital asset space.”

To understand how your business can identify fraud and scams involving cryptoassets using Elliptic solutions, schedule a demo.

Luxembourg publishes guidelines for investing in cryptoassets

On November 29, 2021, the Luxembourg Financial Markets Regulator, Commission de Surveillance du Secteur Financier (CSSF), posted a FAQ crypto asset document. It states which market participants are authorized to trade cryptoassets. It clarifies that Alternative Investment Funds (AIFs) and Investment Fund Managers (IFMs) must obtain prior approval from the CSSF before trading in cryptoassets. This includes, “[a]n updated risk management policy, including specifically how risks related to virtual assets are managed” and “asset-side AML/CTF analysis”. Furthermore, “CSSF expects […] Supervised entities investing in virtual assets possess and can demonstrate an adequate understanding of the new PN, TF, proliferation financing risks posed by virtual assets and the necessary measures to mitigate them.” Dealing with a crypto-asset that wants to do business in Luxembourg should refer to Department of Justice Vertical Risk Assessment Framework for doing business with cryptoassets.

This FAQ follows a similar reminder from the Dutch central bank covered by Elliptic last week. Schedule a demo to learn more about Elliptic’s AML/CFT compliance solutions.

US authorities are partnering with the crypto asset industry to innovate and shape regulation

November 29, 2021, Federal Reserve Bank of New York announced opening of the New York Innovation Center (NYIC). This initiative is a strategic partnership with Bank for International Settlements (BIS) Innovation Center. which works on the development of new technology for central banking and the global financial system. NYIC fosters collaboration between the public and private sectors in designing and launching fintech products. The center is led by Per von Zelowitz, who benefits from fintech experience in the private sector. NYIC will focus on five areas:

• Supervisory and regulatory technology;
• Financial market infrastructure;
• The future of money;
• Open finance; and
• Climate risk.

That same week, the chair of the US House Financial Services Committee, Maxine Walters, the witnesses announced from the crypto-asset industry who will testify at a Committee hearing on “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States.” Among those who testified were CEOs of America’s largest cryptocurrency companies. The hearing will be held on December 8 and will be broadcast live.

Both the NYIC and House Committee initiatives are showing increasing interest in partnering with the crypto-asset industry to shape the future of regulation and innovation. Go to Elliptic blog to learn more about our engagement with regulators and industry stakeholders.

📺 Join Elliptic’s December webinars on the FATF Guidelines and beyond

On 28 October 2021, the Financial Action Task Force (FATF) published updates to its Virtual Asset Guidelines, making it clear that Virtual Asset Service Providers (VASPs) will need to adhere to the same set of comprehensive regulatory compliance standards that banks are already working.

Join us in this two-part webinar series as we take a deep dive into key guidance changes and their implications for the industry.