EU Crypto Wallet Ruling – How it Affects You

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  • The EU Parliament voted yesterday to force exchanges to collect personal data on private wallet holders
  • Any private wallet holders who transact with an exchange must hand over their personal information
  • How does the rule change impact regular users?

The EU Parliament voted yesterday to amend the EU Commission’s anti-money laundering (AML) package to include a revision of the Transfer of Funds Regulation (TFR) that forces cryptocurrency entities to collect additional details on transactions over €1,000, including personal information on the involved parties. With so much to take away from the vote, what are the key ways that will impact users? Our quick guide explains.

Personal Details Collected

Every time a private, self-custody wallet is involved in a transaction with a registered service provider such as an exchange over the value of €1,000, details of the holder of the private wallet will have to be submitted to the exchange before the transaction can take place. This will include the name and address of the holder, which will be reported to the relevant authorities and records held by the exchange.

Identity Verification Required

The rule change means that the registered entity is now legally bound to not just collect but also “verify the accuracy of information with respect to the originator or beneficiary behind the unhosted wallet”. If the exchange can’t verify the information, the transfer might not be allowed to go through. This verification process will likely slow down the transaction process and potentially increase costs.

Data Honeypots

Cryptocurrency exchanges, even unregistered ones, will hold all recorded personal information, linking names and physical addresses with cryptocurrency accounts. This will create a huge honeypot for hackers who would be able to target large holders with virtual or even physical attacks.

Cryptocurrency Users Unfairly Targeted

Rather than bringing cryptocurrency into line with existing regulations, the changes to the travel rule actually penalize cryptocurrency users to an unfair degree, with much more oversight placed on them than fiat users. Essentially, anyone who sends money from a self-custody wallet is being treated as a criminal.

Rules Could be Tightened

There is a provision in the bill stating that a year after its implementation the rules can be revised, with another provision in place for every cryptocurrency transaction from a private wallet of any value whatsoever to be given the same treatment.

Crypto Wallet Rules Could be Tightened Further

The move is clearly designed to push users to using regulated exchanges where KYC is already completed and away from self-custodied wallets, where the coins can be seized by government agencies at will. This, of course, flies in the face of the freedoms attributed to cryptocurrency users and it will be interesting to see if the crypto community can find a way round the new rulings to lessen the damage.