Following the overwhelming votes in the European Union Parliament against the operation of the crypto industry, digital asset enthusiasts have been left reeling, with some experts cautioning that the new rules would prove costly.
The new development comes after the EU’s plan to curtail the energy-intensive proof-of-work (PoW) technology operation, which sent the industry into panic mode as many envisioned the move by the EU as a ban on Bitcoin.
However, the initial proposal did not make it through the European Parliament during the first vote in March. But, another controversial anti-money laundering regulation has gained overwhelming votes in parliament and is waiting for the various governments to sign up before becoming law.
Crypto Service Providers in the Mix
The new regulation falls under what is known as the “travel rule.” As outlined in the new law, partners facilitating transactions in cryptocurrency are mandated to verify the recipient. According to the wish of the EU lawmakers, even the smallest payment or transaction is subject to scrutiny, especially where the asset belongs to a private individual.
As a result, the sender must provide the details of the recipient of the funds to the crypto exchange, which in turn would be monitored by the respective regulatory bodies in each of the member countries making up the European Union.
Some proponents of the new guidelines, like lawmaker Assita Kanko, argued that the proposed travel rule would help the authorities fight crime and other illegal financial transactions. The lawmaker has previously disclosed to CoinDesk that it might trigger another round of innovation in an industry known for its creativity.
Kanko further added that if the traditional banking sector is seen as too old and innovative by the crypto industry and is still operating despite the travel rules, why would the crypto industry not be able to do so?
However, as pointed out by observers during the Paris Summit, the new rules do not function as expected in the mainstream financial industry. Involving the crypto industry will only worsen the situation for the blockchain technology ecosystem.
Accordingly, the new rule requires crypto exchange platforms to inform the authorities when a transaction involving an unhosted wallet is initiated without considering its limit.
Financial Regulatory Bodies Would be Overwhelmed
According to Hedi Navazan, Crystal Blockchain’s head of compliance, the financial intelligence bodies in charge of suspected illicit transactions will be forwarded bulk data. Any alleged money laundering activity will be sent to them without the capacity to handle the massive reports, even with the current information they get from banks.
The above argument by Navazan lends credence to the findings carried out by the United Kingdom’s Law Commission, which complained in 2019 that there are way too many law quality reports on money laundering forwarded to the authorities by financial institutions.
The new laws hoisted on the crypto industry are viewed by many as high-handed, capable of undermining the digital financial asset sector’s progress by not being handled constructively.