Circle Responds to European Banking Authority’s Proposal on Money Laundering and Terrorist Financing Guidelines
In a public consultation, Circle has responded to a proposal from the European Banking Authority (EBA) to expand its money laundering and terrorist financing guidelines to include crypto-asset service providers. Circle raised concerns about the terminology used in the EBA’s proposal, specifically the term “providers of services in the crypto-assets ecosystem.” According to Circle, this term lacks precision and does not exclusively cover businesses regulated under the EU’s MiCA framework.
Circle argues that providers exempt from MiCA should not be designated as higher risk, as their exclusion from EU regulations suggests they do not require financial, prudential, and AML regulation. Additionally, Circle expresses worry that the broad definition of “providers of services in the crypto-assets ecosystem” could unintentionally include technology providers and ancillary services.
Circle emphasizes the need for the new EBA guidelines to be technology-neutral and aligned with existing EU legislation, such as the Markets in Crypto-Assets Regulation and the Transfer of Funds Regulation.
Risks Associated with Self-Hosted Wallets
Circle refutes the notion that self-hosted wallets are inherently high-risk. Citing a FATF review from July 2021, Circle points out the variability in data related to illicit transactions using self-hosted wallets, indicating a lack of consensus on the associated money laundering and terrorist financing risk. Circle believes that the implementation of the Transfer of Funds Regulation will adequately address illicit finance risks in transactions involving self-hosted wallets.
In May, the EBA initiated a public consultation to amend its guidelines on money laundering and terrorist financing risk factors, aiming to extend the scope to crypto-asset service providers.
Hot Take: Striking the Right Regulatory Balance for Crypto-Asset Service Providers
As the crypto industry continues to evolve, striking the right regulatory balance for crypto-asset service providers is crucial. While addressing money laundering and terrorist financing risks is essential, it is equally important to avoid overly broad definitions and ensure technology neutrality. The European Banking Authority’s proposed guidelines should carefully consider the scope of regulation, taking into account exemptions and aligning with existing legislation. By fostering a balanced regulatory framework, regulators can promote innovation and growth in the crypto ecosystem while safeguarding against illicit activities.
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