Global: Crypto Exchanges to Comply with EU Travel Rule by Year-End

In a significant move to strengthen Anti-Money Laundering (AML) measures, the European Banking Authority (EBA) has announced that the Travel Rules guidelines will now extend to crypto service providers and their intermediaries.

Starting December 30, 2023, crypto exchanges operating within the European Union will be subject to Regulation (EU) 2023/1113 (Travel Rule guidelines), which mandates the reporting of information on transfers of funds and crypto assets.

As a result, Crypto Asset Service Providers (CASPs), as defined in the EU’s Markets in Crypto-Assets Regulation (MiCA), will come under the EU’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime.

Impact on Crypto Exchanges

Once the regulation takes effect, payment service providers (PSPs), intermediary PSPs, CASPs, and intermediary CASPs will have a two-month buffer period to declare adherence to the new requirements.

“The deadline for competent authorities to report whether they comply with the Guidelines will be two months after the publication of the translations,” the EBA stated.

General provisions include collecting user information for the transfer of funds or crypto assets, identifying whether transactions are related to the purchase of services, and detecting transfers that appear to be linked. Additionally, crypto service providers and intermediaries will need to declare their policies on multi-intermediation and cross-border transfers.

Long-Term Benefits

The EBA acknowledges that achieving compliance with EU Travel Rule guidelines will impose financial stress on crypto exchanges and service providers. However, the regulatory agency expects that the overall benefits will outweigh the potential costs.

“Overall, the benefits from these Guidelines are expected to outweigh potential costs, and these Guidelines are expected to contribute to making the fight against ML/TF more effective,” the EBA stated.

Crypto exchanges and service providers currently under the scope of the EU’s Anti-Money Laundering Directive (AMLD) or a domestic AML/CFT regime will continue to be subject to the applicable AML/CFT requirements.

Related Developments

As European governments tighten regulations on crypto exchange activities, crypto protocols are taking proactive steps towards compliance. For instance, the Cardano Foundation, in partnership with the Crypto Carbon Ratings Institute, has released sustainability indicators for the Cardano network to comply with MiCA regulations in the EU.

The report highlights that Cardano operates on a more energy-efficient consensus protocol and consumes significantly less electricity than proof-of-work protocols. It also provides data on the total annualized electricity consumption and carbon footprint of the Cardano network, along with marginal power demand per transaction per second, among other important metrics.