Crystal Intelligence teamed up with EUBOF, 21Analytic, VASP Holdings, and EUCI, to submit comments to the European Banking Authority (EBA) regarding their public consultation on Guidelines to prevent the abuse of funds and certain crypto-assets transfers for money laundering and terrorist financing purposes (EBA/CP/2023/35). The consultation process, which opened on November 24, 2023, and concluded on February 26, 2024, is a critical step towards enhancing regulatory frameworks within the evolving landscape of crypto assets.
We welcome the AML/CFT guidelines for crypto assets
Crystal and our partners welcome the EBA’s published guidelines aimed at addressing the potential misuse of funds and crypto assets for money laundering and terrorist financing (ML/TF), and other serious financial crimes. As proponents and practitioners of responsible innovation, we recognize how important regulatory clarity is in mitigating the risks associated with ML/TF.
Our comments on the EBA’s crypto AML/CFT guidelines
While we applaud the direction the EBA guidelines take for crypto asset regulation, we believe that clarity is king: Some definitions and explanations can be tightened up for the benefit of all crypto industry role-players, and using practical examples of when, where, and how to implement the guidelines will also help greatly.
We identified three areas of concern across ten items in the EBA guidelines for which we made recommendations to help strengthen the proposed AML/CFT framework for crypto assets:
The EBA crypto guidelines on self-hosted wallets
We challenge the contention that self-hosted wallets present an inherent ML/TF risk, while we acknowledge that they could be a potential risk-increasing factor, along with many other factors.
Instead, we advocate for transacting with self-hosted wallets through a well-established and managed risk-based approach, where tailored risk assessments are based on transaction volumes, frequency, and accurately identifying and understanding the counterparties involved.
It follows that Crypto-Asset Service Providers (CASPs) facilitating transfers to and from self-hosted wallets should not be automatically designated higher-risk entities.
It’s worth noting that our position on self-hosted wallets echoes that of the UK Government’s Treasury in June 2022 (Page 28, Item 6.21).
Use of blockchain analytics tools
We believe it’s critical to use blockchain analytics tools to mitigate ML/TF risks when transacting with self-hosted wallets, analyzing transaction patterns and assessing behavioral data, including its associated metadata, to distinguish between different types of wallets.
Open-source protocols for interoperability
We emphasize the importance of open-source protocols in enabling CASPs to achieve maximum interoperability while ensuring compliance with regional requirements. Open-source protocols provide the flexibility required by CASPs’ unique business models and requirements to interoperate with counterparties across different jurisdictions.
Geographical boundaries, legislative vagaries, and jurisdictional inconsistencies make applying the travel rule for crypto assets an onerous task, and the evidence of the TRISA/TRP partnership in November 2023 suggests that open-source protocols pave the path forward to achieving compliance with FATF recommendation 16.
Awaiting the EBA’s feedback on our comments
As well as believing that clarity counts when trying to regulate crypto, we also hold that proportionality is important, a vision for the financial sector that the EBA expressed as a policy objective on AML/CFT in January 2023. We hope to see our industry included more closely in the regulatory fold in future.
Read the full public response on the EBA guidelines here and find out how Crystal Intelligence can help you in your crypto industry role by getting in touch with us at [email protected].
