European Union authorities are moving toward stricter regulations on crypto assets, with a proposed ban on privacy tokens slated for 2027. The EUCI handbook describes a ban on anonymous crypto-asset accounts. More specifically, it places the spotlight on self-custody addresses controlled by credit and financial institutions, as well as crypto-asset service providers. These are just the U.S. measures that make up a larger global campaign against money laundering and terrorism financing.
As they’re deeply interconnected, the forthcoming regulations are inextricably linked to the Anti-Money Laundering Regulation (AMLR), which goes into force in July 2027. The AMLR provides a framework for when and how companies should conduct their CDD. It provides unambiguous direction for traditional financial service providers and market participants in the crypto-asset space. Crypto exchanges, which are considered crypto-asset service providers, would all be covered by the same rules laid out in the new law.
The EUCI argues that to improve traceability and prevent the use of crypto in illicit activities, anonymity must be removed from crypto transactions.
To ensure the robust application of AML/CFT requirements, crypto-asset service providers should be prohibited from offering or maintaining anonymous crypto-asset accounts or any mechanism that enables enhanced obfuscation of transactions, including through anonymity-enhancing coins. - EUCI
In its testimony, The EUCI states that anonymous accounts and anonymizing tools make tracing transactions impossible. This challenge further complicates law enforcement’s ability to detect suspicious activity and the applicability of customer due diligence.
Anonymous crypto-asset accounts and other anonymizing instruments hinder the traceability of transactions, complicating the detection of suspicious activity and the application of effective customer due diligence measures. - EUCI
The AMLR—intended to curb money laundering and terrorism financing—It is time for companies to intensify their customer due diligence efforts. This assists with confirming user identities and tracking exchanges for potentially fraudulent activity. Crypto-asset service providers play an important role. They need to use the best controls they can find to be sure their platforms aren’t abused in illicit schemes.
The Markets in Crypto Assets (MiCA) laws adopted last year broadly pursue much of what the AMLR seeks to do. Both regulatory regimes aim to provide a safer and more transparent marketplace for crypto assets. As mentioned above, MiCA is mostly concerned with the regulation of crypto-asset service providers and consumer protection. At the same time, the AMLR addresses the growing risks posed by money laundering and terrorism financing.
The EU’s desire to focus its regulation of crypto assets is not new and is shared by the rest of the world. As crypto adoption grows, regulators worldwide are grappling with how to balance innovation with the need to protect consumers and prevent illicit activities. The EU’s approach provides a transparent legal framework for crypto-asset service providers with the AMLR and MiCA. This strategy further makes a concerted effort to push for greater transparency across the crypto market.
The ban on privacy tokens and anonymous accounts is a significant step in the EU's efforts to regulate crypto assets. Critics claim that these kinds of measures would stifle innovation and represent a violation of privacy. Regulators claim they’re crucial for safeguarding the financial system and combating crime. In any case, these regulations will significantly disrupt the current state of the crypto industry. Companies that provide privacy tokens and services will feel the brunt of this measure.
