EU Lawmakers Back Regulation Threatening Unhosted Crypto Wallets, Defi Space – Regulation Bitcoin News

The European Parliament has approved controversial legislation that may undermine decentralized finance in the EU. The provisions of the regulation, some of which have yet to be coordinated by other European institutions, are designed to restrict transactions that involve private-managed crypto wallets.

EU Parliament Introduces Verification of Defi Wallets

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) supported on Thursday the Transfer of Funds Regulation (TFR). Among other provisions, the TFR obliges crypto service providers to apply stringent anti-money laundering measures in regards to cryptocurrency transactions, including those to and from ‘unhosted’ wallets.

The text, which required crypto platforms to share, verify and keep transaction data with financial authorities, was supported by the majority of ECON members. According to a report by the German crypto news outlet BTC Echo, the procedures apply to transfers of amounts from €1,000, but a press release noted that as crypto transactions often circumvent threshold-based rules, “the MEPs decided therefore to remove minimum thresholds and exemptions for low-value transfers.”

All crypto transfers must include the information required by the TFR. This includes the identity of both the asset’s source and its recipient. Drafters want to make sure that suspicious transactions can be tracked down and stopped if possible. However, “the rules would not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf,” the Parliament’s press service noted.

Additionally, crypto transaction processors will have the ability to block transfers that originate from and are sent to uncompliant providers. That’s according to another provision which was supported as well. Civil Liberties, Justice and Home Affairs Committee (LIBE), also approved this regulation. The official announcement suggesting that the new rules are designed to stop illicit flows in the EU provided the lawmakers’ main motive noting:

Crypto-assets’ transfers would need to be traced and identified to prevent their use in money laundering, terrorist financing, and other crimes.

TFR Decision Viewed by Industry as Setback for Europe’s Crypto Space

If it’s not challenged, the draft will move to the trilogue stage, the next phase of the EU’s legislative process, during which it must be agreed upon with the European Commission and the Council of the European Union. Also, the institutions will be discussing Markets in Crypto Assets framework proposal (MiCA), which was recently presented without its controversial text. This would effectively have prohibited proof-of work (PoW), currencies such as bitcoin.

Just like the PoW ban, the TFR paragraphs sparked negative reactions from the Old Continent’s crypto community. “The obligation to verify unhosted wallets is not only a serious invasion of people’s privacy, but would also have serious consequences for the defi ecosystem in Europe,” said Peter Grosskopf, co-founder of Unstoppable Finance.

Industry watchers not only consider these regulations an attempt to ban unhosted wallets and restrict the defi sector, but also warn that Europe’s prospects as a crypto destination are under threat. These new regulations would severely limit the ability of many crypto-related companies to operate their business. Grosskopf described the move as a “huge economic, financial and social setback for the defi space.”

What do you think the institution in Brussels will do to enforce the crypto regulations? Let us know your thoughts in the comment section.

Lubomir Tatsev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.