‘Unhosted’ crypto wallets in Europe to implement KYC following key vote

The European Parliament on Thursday passed a key vote on provisions related to so-called “unhosted” cryptocurrency wallets.

In a move that has outraged the crypto community, two European Parliament committees, the ECON and LIBE, voted in favor of a provision that requires digital asset companies to collect and share information on crypto-related transactions. The lawmakers believe such reporting of transactions will prevent and detect illicit use of funds such as money laundering and terror financing.

Under the Transfer of Funds Regulation, crypto service providers, such as exchanges, will need to trace the identity of payers and recipients who conduct transactions worth over EUR 1,000 using self-hosted wallets. These anti-money laundering (AML) requirements were previously only implemented on traditional payment service providers, but will now extend to crypto service providers.

MetaMask, WalletConnect, Ledger, and Trezor are some of the self-hosted crypto wallets, wherein users control their own private keys and do not rely on third parties to manage their funds.

Several European lawmakers as well as crypto proponents vehemently opposed the bill on Thursday. Markus Ferber a member of the center-right European People’s Party (EPP), tweeted:

“We need to take AML risks in crypto seriously, but should not ban unhosted wallets. This would be the equivalent of banning cash — unnecessary and disproportionate!”

Before the voting, Brian Armstrong, the founder and CEO of crypto exchange Coinbase, urged the crypto community to voice their opposition to the privacy-degrading rules. Calling the proposal “anti-innovation, anti-privacy, and anti-law enforcement,” Armstrong added:

“This eviscerates all of the EU’s work to be a global leader in privacy law and policy. It also disproportionately punishes crypto holders and erodes their individual rights in deeply concerning ways.”

3/ Every crypto transaction (and not just those with a 1,000 euro threshold, as is the case with fiat) would be “travel rule eligible.”

— Brian Armstrong – barmstrong.eth (@brian_armstrong) March 30, 2022

Per the tallies, 58 votes were in favor, 52 votes were against, and 7 committee members abstained from voting. A tripartite discussion between the European Parliament, the European Council, and the European Commission are required for the bill to formally pass into law, which is reportedly set to take place as early as mid-April.