- The upcoming vote follows a rejected proposal to limit proof-of-work cryptocurrencies
- The latest revision, among other changes, seeks to strictly manage crypto transfers involving self-hosted wallets
After last week’s rejection of a proposal in the Markets in Crypto-Assets (MiCA) bill that aimed to restrict Proof-of-Work (PoW) mining, the European Parliament has produced a new draft focused on cryptocurrency transfers. The draft includes several measures that would affect transfers involving self-custodied or “unhosted” wallets and is scheduled for a committee vote.
In a Saturday Twitter thread, Unstoppable Finance’s Patrick Hansen highlighted that the European Parliament’s Committee on Economic and Monetary Affairs will consider rules aimed at so-called unhosted wallets. Hansen, who previously reported on the defeated MiCA measure, said the new draft contains multiple provisions he described as “red flags.”
The first notable change would require exchanges and other crypto service providers to record and verify identifying information tied to unhosted wallets.
“Different from the initial proposal … the draft now requires to ‘verify the accuracy of information with respect to the originator or beneficiary behind the unhosted wallet’ but it doesn’t say exactly how a crypto service provider should be able to verify the unhosted counterpart,” Hansen observed.
Intrusion of privacy
Hansen also pointed to a provision that would oblige companies to report to anti-money-laundering (AML) authorities any transactions over 1,000 EUR, even if those transactions are not flagged as suspicious or linked to money laundering. He called this requirement “an absolute violation of privacy rights.”
He identified a further concern in a clause that directs the European Commission to assess, within 12 months after the rules enter into force, whether additional measures are needed to mitigate risks from transfers to or from unhosted wallets, including the possible introduction of restrictions. Hansen highlighted this as another major red flag.
A fourth controversial element would require sharing personal information for any crypto transaction that is not strictly peer-to-peer. Under the draft, no minimum threshold is set for such reporting.
“While the FATF travel rule only requires these measures for transactions over a certain amount (around $1,000) and the transfer of funds rules for fiat require information sharing for transfers over 1,000 EUR, the draft sets no minimum threshold for crypto transfers,” Hansen posted.
Exchanges could face heavy burdens
Coinbase chief legal officer Paul Grewal urged users to oppose the draft in a company blog post, asking people to “make their voice heard” ahead of the committee vote. Grewal warned that if enacted, the rules “would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that individuals use to securely protect their digital assets.”
The Committee on Economic and Monetary Affairs is expected to vote on the draft proposal as soon as Thursday. If passed by the committee, the measures could reshape how platforms handle transfers involving self-custodied wallets and impose new compliance obligations across the crypto industry.