As the European Union institutions are advancing their discussions on the controversial Transfer of Funds Regulation (TFR), crypto industry representatives are looking to hamper the proposal’s potentially harmful impact on the sector’s future development.
Among others, the regulation could pave the way for a crackdown on so-called “unhosted wallets,” or just regular crypto wallets. Art. 5 of the draft requires exchanges to report to the authorities every transfer from a non-customer’s wallet of at least EUR 1,000 (USD 1,1115).
Lavan Thasarathakumar, Director of Government and Regulatory Affairs at Global Digital Finance (GDF), said in a letter to members of the European Parliament that the industry body wants to draw decision-makers’ attention to the need to: adopt a proportionate approach to “unhosted wallets,” reinstate the EUR 1,000 threshold and remove blanket reporting to competent authorities, and extend the phase-in period.
“GDF proposes that a period of 12 months for phase-in requirements and 24 months for implementation are put in place. This will give exchanges enough time to put in place the measures to deal with this,” he said.
Thasarathakumar added that, while the GDF welcomes the anti-money laundering package, there is a concern within the crypto industry “the requirements highlighted above may lead to exchanges deeming it commercially unviable to engage with unhosted wallets; creating a de facto ban.”
Meanwhile, Patrick Hansen, Head of Strategy and Business Development at Unstoppable Finance, tweeted that, with the European Parliament’s Committee for Economic and Monetary Affairs (ECON) scheduled to vote on the draft regulation this Thursday, Brussels leaves him and other industry players “no choice” but to “ring the alarm bell again”.
“The ECON committee and each political group (party) are still in final discussions on the compromise draft. Due to the tight timeframe, it is unlikely that there will be substantial changes to the compromise draft prior to Thursday,” Hansen said.
He was joined in his criticism by other crypto industry representatives:
Hansen says the Socialists and Democrats, the second-largest group in the parliament, as well as the far left and green MEPs are likely to vote in favor of the controversial measures. At the same time, the largest group, the European People’s Party (EPP), conservative and far right lawmakers are expected to vote against them.
Stefan Berger, a German lawmaker from the EPP who is in charge of shepherding the crypto-focused Markets in Crypto Assets (MiCA) legislation, opposes the provision on ‘unhosted wallets’, calling it “disproportionate & harmful to the DeFi [decentralized finance] sector.”
Michiel Hoogeveen, a Dutch MEP from the European Conservatives and Reformists group, also declared that he would vote against the controversial provision, and said that,
The “amendments to the Transfer of Funds Regulation make transfers to a wallet unnecessary complicated, come with privacy risk and will hinder innovation.”
Under the EU’s complex legislative procedure, the Council of the European Union, which comprises ministers from 27 member states, and the European Parliament, which is the EU’s only directly-elected institution elected in 27 member states are involved in the so-called trilogue negotiations on legislative proposals.
Within this framework, the Parliament, the Council and the European Commission, which leads the EU governance, hold tripartite meetings which could end with a provisional agreement on the draft legislation.
A potential agreement that could be reached between EU institutions would be informal, and it would require formal approval by each of the three institutions.