The European Union, the European Parliament, the Council and the Commission reached an interim agreement on June 29 on the Transfer of Money Regulations (TOFR). TOFR is part of the legal framework under which the EU is establishing regulation on cryptocurrency.
After deployment, service providers cryptocurrency (CASP) in the EU have an obligation to follow the rule and adjust their internal policies and procedures accordingly.
In a variety of tweets Regarding the interim deal, Ernest Utasun, an EU lawmaker, saw the deal as the answer to the “unregulated crypto wild west.”
According to him, the TOFR rules apply to every transaction, even if it is no more than 1 Euro, including transactions made at crypto ATMs. In addition, CASP will be required to collect data about non-custodial wallet transactions, including transactions made and received from the wallet.
The rule also requires that the identity of the owner of the non-hosted wallet be verified when making transactions over 1000€ (equivalent to 1,045 US dollars). The no-storage wallet rules seem to be driven by the mindset that nefarious people primarily use them to commit crimes.
Another controversial topic that forced the regulation was Russia Leverages Cryptocurrency to avoid financial sanctions. Under this rule, CASPs must operate under economic sanctions imposed by the EU.
However, the rules do not apply to peer-to-peer (P2P) transactions. This means that if users don't like implementing TOFR rules about data collection, they can switch to P2P transactions.
The rules will also govern the relationship of digital asset providers with CASPs in developing countries, especially where these providers are unregulated and unlicensed.
Speaking about the rules, EU policymaker Ondřej Kovařík tweeted:
EU institutions have found a provisional political agreement on the Transfer of Funds Regulation. I believe it strikes the right balance in mitigating risks for fighting money laundering in the crypto sector without preventing innovation and overburdening businesses. pic.twitter.com/k0P0I3Ah6KJune 29, 2022
“EU institutions have reached an interim political agreement on the Regulation of Remittances. I believe it strikes the right balance of mitigating money laundering risks in the crypto space without stifling innovation and overwhelming businesses.”
Cryptocurrency provider will protect data collected on transactions and make it available to EU
Concerns about TOFR . rules
The European Union has recently stepped up efforts to implement regulatory frameworks for cryptocurrency activity. Several institutional crises recorded in the crypto market since 2022 have further increased this demand.
However, experts and analysts see the regulatory efforts as a move to limit its use crypto in the EU. At the same time, TOFR rules have a high probability of violating citizens' privacy rights.
Instead of supporting the development of cryptocurrencies, many believe that regulations will delay development blockchain in the EU and stifle innovation. Another potential negative impact from requiring data collection of all transactions can be unnecessarily slow and costly exchange operations.
Likewise, the security of the data collected is also at stake. In particular, the process of transferring data between CASPs and governments can make them vulnerable.
The European Authority, the European Commission and the European Banking Authority are some of the EU institutions that have been hacked in the past.
The rules will go into effect 18 months after the MiCA regulation is applied.
Cryptocurrency wild west regulation
TOFR introduces several anti-money laundering rules to collect data about cryptocurrency transactions.