Adoption of TFR in the European Parliament: the fight against financial crime should not be a fight against crypto-assets
Paris, 31 March 2022 – This afternoon, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice and Home Affairs (LIBE) jointly adopted their compromise report on the proposed recast of Regulation (EU) 2015/847 (the so-called “TFR”), which extends requirements for crypto-assets fund transfers. The version of the text adopted ratifies – perhaps without knowing it – the Parliament’s desire to deprive Europe of this innovation.
Adan reaffirms its commitment to the fight against any use of crypto-assets for money laundering, terrorist financing and organised crime.
In this respect – and although every technological innovation opens a new breach into which criminal activities are engulfed – crypto-assets are much more a tool in the fight against fraudulent financial activities than an obstacle to it.
Crypto-assets as a support in the fight against financial crime
The traceability that intrinsically characterises blockchain technologies makes it possible to follow a chain of transactions in their entirety and thus to make a relatively easy link between an illicit operation and its author. Also, the holding of a large majority of crypto-asset transfers is based on pseudonymity. In this respect, their use in cases of illicit financing has contributed more to directing intelligence services in their investigations than to complicate them.
Also, the holding of a large majority of crypto-asset transfers is based on pseudonymity. In this respect, their use in cases of illicit financing has contributed more to directing intelligence services in their investigations than to complicate them.
Relying on the recording of transactions on public and transparent registers, industry has seen the emergence of technological solutions that scan financial flows and derive a “transactional analysis”. Such properties are a deterrent to criminals. As proof, the share of fraudulent transactions in total crypto transactions has been steadily decreasing since their creation. It appears that the share of fraudulent transactions in total crypto-asset transactions has fallen from 3.37% in 2019 to 0.62% in 2020 and 0.15% in 2021.
Furthermore, it should be noted that in France, digital asset service providers (DASPs) that regularly act as intermediaries in crypto-asset transactions are exemplary. Since the entry into force of the law on the growth and transformation of businesses (PACTE) in May 2019, the latter must indeed register compulsorily with the Autorité des marchés financiers (AMF), following a procedure that requires involvement and rigour in terms of the fight against money laundering and terrorist financing. As such, they comply with regulatory requirements that are sometimes stricter than those of traditional banking and financial players.
TFR, another blow to a strategic sector for Europe’s financial sovereignty
Following the latest guidelines of the Financial Action Task Force (FATF), the European Union wants to extend the scope of the “travel rule”, i.e. an obligation to share information related to transactions, to include crypto-assets. Such a measure poses numerous difficulties, particularly in terms of its practical implementation, the governance of personal data and the right to privacy.
Moreover, the amendments adopted today further worsen the state of the text and could dangerously undermine the development of the crypto-asset sector in Europe. The current version of the Regulation significantly expands its scope and effectively hinders the possibility for European users to interact with Non-Fungible Token (NFT) markets – blocking access to digital value, decentralised finance protocols – synonymous with financial inclusion – and micropayment solutions via crypto-assets – synonymous with financial autonomy and inclusion.
- The extension of the travel rule to transactions involving CASPs and unhosted wallets seems on the one hand unworkable and on the other hand considerably excessive.
- The application of the travel rule from the first euro to crypto asset transfers seems deleterious and unjustified in view of the exemption enjoyed by traditional fund transfers.
- The obligation for CASPs to verify the accuracy of the information collected during the transfer is, on the one hand, not within their remit and, on the other hand, seems impossible for many crypto-asset transfers without a technological solution being operational first.
A more measured and pragmatic approach to be adopted in the further examination of the text
The legitimate emotion aroused by the current geopolitical context cannot and must not be the sole compass of our action, leading to quick legislation rather than effective legislation. In this respect, Adan calls for a proportionate and adapted approach to be adopted in the ongoing debates on the revision of the TFR, which takes into account the reality of the crypto-asset sector in terms of both its opportunities and its maturity.
Necessarily, care must be taken not to automatically expose European companies to a risk of non-compliance, as they do not have the technical means to apply the regulation. It would also be advisable for the institutions to promote partnerships aimed at developing and financing a European and resilient solution that would allow the Regulation to be applied serenely to the crypto-asset sector. Crypto-asset technologies need to be better understood and used as a vehicle for financial security in order to adequately fulfil the objectives of the text.
In order to build a Europe that is at the forefront of the digital sector, it is imperative that it supports the development of its businesses based on disruptive technologies.
“By participating in this international race with only one leg – that of unbalanced regulation to the detriment of support for innovation – Europe is hampering the competitiveness of a sector that is strategic for its digital sovereignty,” warns Faustine Fleuret, President of Adan.
Adan (Association for the Development of Digital Assets) brings together crypto-assets and blockchain professionals in France and Europe. Its members cover many activities: markets, custody, payments, management, analysis tools, project and user support. Adan’s mission is to unite the digital asset industry and promote its development in the service of a new digital economy. To this end, the Association has technical expertise in digital assets and maintains a close dialogue with public authorities and industry associations.
Contact : Faustine Fleuret, President and CEO – [email protected] Mélodie Ambroise, Head of Strategy and Institutional Relations – [email protected] Hugo Bordet, Regulatory Affairs Manager – [email protected]