EU Parliament approves rules targeting transfers to unhosted crypto wallets

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The European Parliament has approved provisions to a bill that takes aim at so-called unhosted wallets. 

On March 31, the ECON and LIBE committees voted to approve amendments to its Transfer of Funds Regulation that would require crypto service providers ⁠— usually exchanges ⁠— to verify the identities of the owners of unhosted wallets with which they transact in advance of a transaction.

The committee votes on the amendments in question were 58 for, 52 against, with 7 abstentions, per voting tallies shared with The Block. The committees will hold another vote on the Transfer of Funds Regulation today, but the final vote is not expected to see much resistance. Pending a final vote, the bill could face trilogues with the European Commission and European Council as soon as mid-April.

The European Parliament has sped up its process for the Transfer of Funds Regulation, which is the bloc's response to the Finance Action Task Force's globally envisioned travel rule.

However, while the European Commission and the European Council's versions of the regulation include an equivalent requirement for crypto servicers to ask users to identify the owners of external self-hosted wallets, they do not demand those servicers independently verify the identities of those wallet owners themselves — a requirement impractical enough that the crypto community sees it as basically a blockade on transactions from exchanges to self-hosted wallets. 

The new provisions, while threatening to self-hosting, are on track to face significant blowback from the Council and Commission, which are generally more technically savvy and less politically exposed than Parliament.

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May 5, 2022, 3:17PM UTC