On June 29, 2022, the European Parliament, the Commission, and the Council reached a provisional agreement on the European Union proposal to update Regulation 2015/847 on information accompanying the transfer of funds (“TFR”) by extending its scope to transfers of crypto-assets. The final text is to be published.
Presented as part of the future European AML/CFT legislative package, the revised TFR aims to regulate the transfer of crypto-assets to avoid illicit flows and consists of an adaptation of the existing TFR rules currently applying to cash transfers only.
This regulation should be read in light of the forthcoming Markets in Crypto-Assets Regulation with respect to certain definitions which also will apply to these new rules.
Under the future TFR regime, the crypto-asset service provider (“CASP”) of the party initiating the transfer will have to ensure that the transfer includes information on both the initiator and the beneficiary. The thresholds (from the first euro or from 1,000 euros) will apply depending on whether the transfers occur between CASPs, between CASPs and unhosted wallets, or between unhosted wallets.
The beneficiary’s CASP then will have to check whether the required information is included in the transferring message prior to executing the transfer.
One of the main challenges with the application of this “travel rule” relates to unhosted wallets, which are crypto-asset wallet addresses held directly by their owners without using a CASP. Although affected parties may have difficulty complying with the technical requirements of the rule, no exemption has been provided for exclusions to its application, raising concerns in the crypto-asset space. One may expect some refinement in the final text to take into account the specificities of crypto-assets without detracting from the objective of increased transparency.
Another issue relates to the protection of personal data as it is not envisaged to provide for specific rules of the EU General Data Protection Regulation to apply to information “travelling” under the TFR. This will therefore also need to be addressed by specific legislation.