Europe publishes ‘Travel Rule’ guidelines for cryptocurrency firms in push to curb money laundering and financial crime

The European Union (EU) is adding more layers to its cryptocurrency regulations to ensure that virtual digital assets (VDAs) are not misused by criminals to conduct or finance illicit activities. The European Banking Authority (EBA) has imposed a “travel rule” on cryptocurrency firms that will require them to store transaction details on their platforms, which aims to reduce cases of money laundering and terrorist financing through crypto assets: these transactions often leave no traces that lead back to the perpetrators.

The EBA has made it mandatory for all cryptocurrency firms to disclose details of every transaction on their respective platforms, as per declaration published by the regulator earlier this month.

EBA Travel Rules Guidelines

Under the new guidelinesCryptocurrency firms in the EU have been ordered to collect and maintain payer and payee records for all transactions. The travel rule applies to all firms operating in the EU region, which will be required to confirm their compliance. Firms seeking an exemption must provide justification to the authorities, which will be assessed.

Cryptocurrency firms that fail to comply with this law without notifying authorities will be classified as “non-compliant” firms and could face legal action. Firms linked to cryptocurrency financing have been urged to amend their policies to align with the EBA’s travel rule, which already covers the traditional banking sector.

The guidelines are comprehensive and will come into effect on December 30.

EU rules on cryptocurrencies

The EBA is also working with EU policymakers to enshrine the volatile and financially risky cryptocurrency sector in a robust legal framework, in a move that should make the cryptocurrency sector safer for investors to explore, without jeopardising the EU’s financial stability, while cracking down on cryptocurrency exploiters.

In early June, the EBA published the final draft of the technical standards that will govern its Markets in Crypto Assets (MiCA) rules. The EBA addressed a number of issues in its final draft technical standards, including those related to liquidity requirements, the stress testing programme, capital buffers and recovery plans.

The EU passed the MiCA legislation in October 2022, aiming to ensure consumer protection, prevent market manipulation and limit financial crimes related to digital activities in the EU.

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