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EU Banking Watchdog Issues Anti-Money Laundering Guidance for Crypto Firms

The European Banking Authority (EBA), the EU’s banking regulator, has issued new guidance for crypto firms to comply with its anti-money laundering (AML) and counter-terrorism financing (CTF) requirements. The guidance aims to harmonize the approach that crypto asset service providers (CASPs) across the EU should adopt to prevent and combat financial crime.

CASP is a term that covers a range of activities involving crypto assets, such as custody, exchange, transfer, issuance and advice. According to the EBA, CASPs are exposed to various risks of money laundering and terrorism financing, due to factors such as the use of innovative technologies, the speed and anonymity of crypto transactions, and the cross-border nature of the crypto market.

To mitigate these risks, the EBA has extended its existing guidelines on AML/CTF risk factors to CASPs, providing them with a non-exhaustive list of indicators that may affect their level of exposure to financial crime. Based on these indicators, CASPs should conduct risk assessments of their business and customers, and adjust their customer due diligence (CDD) measures accordingly.

The EBA also advises CASPs to use blockchain analytics tools to monitor and trace crypto transactions, and to cooperate with other CASPs and authorities to share information and best practices. Furthermore, the EBA warns other credit and financial institutions of the potential risks of engaging in business relationships with CASPs or being exposed to crypto assets.

The new guidance is part of the EBA’s efforts to implement the EU’s regulatory framework for crypto assets, which was finalized last year with the adoption of the Markets in Crypto Assets (MiCA) regulation and the amendment of the Funds Transfer Regulation (FTR). The MiCA sets common rules and standards for crypto activities in the EU, while the FTR imposes obligations on CASPs to provide information on the originator and beneficiary of crypto transfers.

The EBA is also consulting on other guidelines related to crypto assets, such as the prevention of the abuse of crypto transfers for AML/CTF purposes, the risk-based supervision of CASPs, and the internal policies and procedures for compliance with restrictive measures. These guidelines are expected to be finalized and applied by the end of 2024.

The EBA’s guidance is in line with the recommendations of the Financial Action Task Force (FATF), the global standard-setter for AML/CTF, which has urged countries to apply its rules to crypto assets and their service providers. The FATF is currently reviewing its guidance on crypto assets, which was first issued in 2019, and plans to publish an updated version in March 2024.

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