June 24, 2022
The introduction of Bitcoin (BTC) in 2009 marked the beginning of the cryptocurrency industry. Now, the crypto market is one of the leading investment methods worldwide. Despite the market’s high volatility, more consumers and investors are turning to it because of its high value, quick transaction times, and smart contract functionality. BTC was worth less than a cent in July 2010 before it hit an all-time high record of $68,000 on November 10, 2021.
Some also see crypto as more cost-effective and efficient than traditional payment instruments. With it, users can trade online, transfer money at a low cost, or send non-cash remittances in the comfort of their homes using a smartphone. Crypto makes transactions borderless and frictionless because there is no single access point.
However, the crypto sector remaining unregulated is being challenged in Europe. On March 31, 2022, the European Union (EU) parliament passed a proposal regulating cryptocurrencies. Over 90 EU lawmakers agreed to end crypto’s anonymity by preventing any anonymous transactions from occurring regardless of size. The decision came amid the strong objection of crypto leaders, denouncing the move as counterproductive and overly burdensome.
These new policies will change crypto industries because providers must track all coin transfers. Crypto-asset providers can adapt to these regulations by integrating LoginID’s FIDO-certified passwordless authentication solution for transaction confirmation and payment authentication. This cutting-edge technology paves the way for frictionless login and transaction in crypto networks.
Why is the EU Regulating the Crypto Industry?
The emergence of innovative technologies, like digital currencies, brought new risks to address. Crypto channels are open-sourced ledgers distributed publicly, giving senders and beneficiaries anonymity. Without monitoring, cybercriminals can often perform illicit activities without raising suspicions. One of those is money laundering which could be used for financing terrorist groups.
The series of terror attacks in 2015 encouraged the Union to strengthen measures against terrorism. In response, the Council amended the 1991 anti-money laundering directive (AMLD) on June 19, 2018 - the fifth time the EU improved the Act.
The directive’s fifth amendment, otherwise known as 5AMLD, enforces strict checks of transactions from and to high-risk third countries with low AML measures. The regulations also strengthen financial supervision, improve transparency, and track syndicates disguised as fictitious companies.
On July 20, 2021, the European Commission passed legislative proposals to strengthen financial security against money laundering and terrorism financing. In March 2022, parliamentarians legislated the inclusion of crypto-assets transfers in AMLD coverage.
Impact of Cryptocurrency Regulation
The primary purpose of regulating the crypto sector is to address the gaps in the current EU anti-money laundering and countering the financing of terrorism (AML/CFT) framework. The EU explained that reforms are necessary to track and identify suspicious activities committed through crypto. The new AML/CFT package aims to regulate crypto-asset transfers, to which no rules have applied before.
Specifically, the legislative proposals seek the following:
Make Crypto-Asset Transfers Traceable
The Member of the European Parliament (MEP) proposed that the AML/CFT rules used in wire transfers be applied in crypto. One of its effects will be that all information about crypto-asset transfers becomes available to a competent authority.
To facilitate this end, MEP will require all crypto companies to store, hold, and submit information about crypto transactions. This includes the party’s names, addresses, birth dates, and account numbers. It also covers the peer-to-peer transactions done in self-hosted wallets or crypto digital wallets owned by a private user.
The step aims to heighten transparency for tracing suspicious transactions. Spanish Green Party lawmaker Ernest Urtasun explained that criminals in money laundering scandals thrive in areas that allow secrecy and anonymity. So, regulating crypto will make it easier to freeze assets and discourage high-risk transactions involved in illegal activities.
Leveraging digital identity verification with FIDO2 specifications can keep each asset transfer individually identifiable. Crypto firms can use a digital onboarding solution coupled with a passwordless authentication UX for user-friendly onboarding and ongoing authentication in mobile and desktop environments while enhancing security.
Removal of the Minimum Threshold
Cryptocurrency’s minimum threshold limits the amount of value crypto users can transfer in a transaction before they have to identify themselves. Before the new proposed regulation in Europe, the threshold was EUR1,000. The new ruling also requires service providers and individuals to provide information about their transactions, including low-value transfers.
Establishment of Centralized Crypto-Asset Registry
MEP also proposed that the European Banking Authority (EBA) create a public registry for businesses and services involved in crypto-asset transfers. The goal of the centralized crypto-asset registry is to provide security and monitoring capabilities. Consequently, it prevents money laundering, terrorist financing, and other financial crimes from thriving on crypto platforms.
Crypto-asset providers will be responsible for enforcing the AML/CFT mandate. The proposal also enables the authority to immediately stop transacting to unaffiliated services that did not follow the new protocols. If the source is proven free from restrictive measures, with no involvement in money laundering or terrorism funding activities, the transfer of crypto assets to a beneficiary will be granted.
Aligning the crypto company’s financial security system to the regulatory requirements with passwordless authentication makes the process easier. Organizations can opt for FIDO2 biometric authentication to replace the traditional passwords with the human body and behavior-based proof-of-identity.
LoginID Authentication Solutions to Meet Cryptocurrency Regulations
Cryptocurrency is still maturing, and its full potential has yet to be explored. Its gradually increasing value attracts not just consumers but also fraudsters and hackers. Even the blockchain, considered invincible by some, is vulnerable to cyberattacks, as culprits have found loopholes in its infrastructure.
Bad actors can exploit its decentralized nature to gain access to confidential information, steal money, and finance illegal activities. Criminals can also run undetected and untraceable because transactions are anonymous. These issues have led Europe to strengthen the users’ protection, especially against financial crimes.
Moreover, this raises the need for crypto businesses to find security solutions that offer regulatory compliance as new policies are enacted. LoginID can provide payment authentication for confirming transactions through their FIDO-certified biometric digital signature tool. It does not only protect the company’s data and resources but also abides by the regulations. Instead of passwords, crypto services can rely on a biometric digital signature to provide real-time anti-money laundering mechanisms.
LoginID adds robust user verification through biometric authentication to prevent unauthorized access. It is also easy to understand and integrate across various operating systems, browsers, and channels. LoginID’s biometric identity verification solutions offer safe account recovery and cross-device attestation mechanisms to ensure that crypto users are the only ones with access to their digital wallets.
To learn how LoginID can help meet cryptocurrency regulations, get started by registering for a free account.