EBA Proposes Expanded Crypto Risk Guidelines: Impact on CASPs and the Future of Regulation

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The European Banking Authority (EBA) has proposed expanding the scope of its guidelines for money laundering and terrorist financing risk factors to include crypto-asset service providers (CASPs). In a recent consultation, the European Union’s financial regulator argued that these guidelines should encompass warnings about transactions with self-hosted crypto addresses and CASPs that fall outside the regulatory reach of the incoming MiCA rules.

While the EBA’s intention is not to single out CASPs, the amendments aim to inform them about the risks associated with their business model and help them mitigate such risks. The new sector-specific guidance emphasizes factors that may indicate a CASP’s exposure to higher or lower money laundering and terrorist financing risks.

Among the associated risks mentioned by the European regulator are products that exchange cryptocurrencies for fiat money and users who engage in activities on the darknet, or are involved in crypto mining in high-risk jurisdictions. CASPs are urged to consider these factors at the outset and during their business and customer relationships, as well as adjust their customer due diligence (CDD) in line with said risks.

The consultation also seeks to have European authorities provide further risk guidance to financial institutions interested in conducting business with crypto companies. The deadline for firms to submit comments on the proposed amendments is August 31, 2023.

As cryptocurrencies gain ground in mainstream markets, governmental bodies are increasingly seeking the opinions of crypto firms on policy matters, such as the UK proposal in February 2023 that covered regulation on NFTs, bitcoin mining, and stablecoins. Several firms, including Binance, a16z, Polygon, Circle, and 21Shares, responded to the UK with agreement, criticism, and suggestions.

In Hong Kong, a consultation period for digital asset regulation contributed to the city-state allowing crypto trading for retail investors. As a crypto enthusiast, it is crucial to stay informed about the evolving regulatory landscape and its potential impact on the integration of blockchain technology into mainstream finance and economic sectors.

Source: Blockworks

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