Europe’s New AML Policy Puts Crypto on Equal Footing with TradFi

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The European Union (EU) is pioneering a significant shift in the world of cryptocurrencies, and in a groundbreaking move, the European Banking Authority (EBA) is extending its anti-money laundering (AML) and terrorist-financing measures to include crypto firms. 

This policy change, which will come into effect on December 30, 2024, marks a pivotal moment where digital assets will be brought under the same regulatory umbrella from a financial crime perspective as traditional financial (TradFi) institutions.

The EBA’s new guidelines are a strategic response to the unique risks associated with crypto assets, these risks are amplified by factors like the swift pace of crypto transactions and certain features that can conceal users’ identities. 

Key Takeaways

  • MiCA regulatory package boosts investor confidence, leading to a 200% increase in Europe’s crypto trade volumes.
  • European crypto market shifts, with Bitcoin, as the top choice and a rise in fiat currency trades over stablecoins.
  • MiCA’s comprehensive rules cover AML, consumer protection, and market abuse and set a precedent for global crypto regulations.
  • Contrast with other regions: Europe’s structured approach vs. uncertain regulatory progress in the U.S. and elsewhere.

To mitigate these risks, the EBA emphasizes the need for crypto asset service providers (CASPs) to implement effective measures.

This decision aligns with the EU’s comprehensive Markets in Crypto Assets (MiCA) regulatory package and its legislation on the transfer of funds via digital assets. 

The EBA is not stopping here; it is actively consulting on additional guidelines, these will further align with the recommendations from the global watchdog, the Financial Action Task Force (FATF), and focus on internal policies and controls for CASPs.

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A Ripple Across The Continent: Increased Crypto Trade Volumes in Europe

The MiCA laws have evidently bolstered investor confidence in Europe’s crypto market, with a report from Kaiko revealing a striking 200% surge in crypto trade volumes within the region (PDF). 

Notably, Bitcoin (BTC) has emerged as the preferred choice among European traders, with the majority of trades occurring through fiat currencies rather than euro-denominated stablecoins. 

This surge in trading activity has been a contributing factor to Europe’s increasing market share in global fiat volume, signaling a reversal in its previously lagging position.

Indeed, the MiCA regulations, which include consumer protection measures and rules to prevent market abuse, have been a game changer.

They have not only attracted investors but also provided a framework for large companies looking to establish a presence in Europe. 

Significantly, the euro is increasingly being used in direct transactions over euro-backed stablecoins, differing from the U.S. trend of relying heavily on dollar-backed stablecoins.

The MiCA effect, as termed by Patrick Hansen of Circle, has also led to record venture capital investments in European crypto projects – with provisions for authorizations, operating conditions, and specific regulations for various types of crypto, MiCA is providing a safe and regulated environment for crypto activities.

Europe’s Forward-Looking Stance in Global Crypto Regulation

The global crypto regulatory landscape continues to evolve, and Europe, with its MiCA regulations, is poised to solidify its rules further, particularly concerning stablecoins and the burgeoning decentralized finance (DeFi) sector. 

The EU is expected to focus on market abuse, AML and Know Your Customer (KYC), investor protection, and crypto classification while also addressing the environmental sustainability of crypto mining.

In contrast, the U.S. and other regions grapple with uncertain regulatory progress and potential enforcement actions. 

Europe’s approach, however, indicates a more structured and proactive stance, likely setting a precedent for other global powers.

The Bottom Line

The EU’s recent regulatory changes mark a significant development in the crypto industry, by putting crypto on an equal footing with TradFi for AML, Europe is not only ensuring a safer environment for digital asset transactions but also leading the way in shaping a more stable and sustainable future for cryptocurrencies. 

As the world watches, Europe’s proactive and comprehensive regulatory framework may become a model for others to follow.

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Sam Cooling
Crypto & Blockchain Writer
Sam Cooling
Crypto & Blockchain Writer

Sam Cooling is a crypto, financial, and business journalist based in London. Along with Techopedia, his work has been published in Yahoo Finance, Coin Rivet, and other leading publications in the financial space. His interest in cryptocurrency is driven by a passion for leveraging decentralized blockchain technologies to empower marginalized communities worldwide. This includes enhancing financial transparency, providing banking services to the unbanked, and improving agricultural supply chains. Sam has a Master’s Degree in Development Management from the London School of Economics and has worked as a Junior Research Fellow for the UK Defence Academy.