EU to Ban Private Tokens by 2027, Tighten AML Rules
2min read The European Union (EU) is set to implement stringent anti-money laundering (AML) regulations by 2027, which will prohibit the use of private tokens such as Monero and Zcash. These new rules, part of a broader reform, will also affect bank accounts, safe deposit boxes, and other cryptoassets with anonymization functions. The regulations, outlined in Article 79 of the new Anti-Money Laundering Regulation (AMLR) published by the European Crypto Initiative (EUCI), will require exchanges, banks, and other service providers to refrain from servicing anonymous accounts or dealing with assets that conceal user data. There are no exceptions for private tokens, ensuring a comprehensive approach to AML compliance.
Crypto platforms operating in six or more EU countries will come under the direct supervision of the Anti-Money Laundering Authority (AMLA). The regulator will select 40 companies, with at least one from each member state, by 2027. The selection criteria include having a minimum of 20,000 customers in one country and an annual turnover exceeding €50 million. Additionally, mandatory user verification will be required for transactions from €1000, enhancing the transparency and traceability of financial activities.
The growth of the crypto industry and its integration with traditional financial institutions (TradFi) has raised concerns about potential disruptions to the global financial system. Natasha Cazenave, the executive director of the European Securities and Markets Authority (ESMA), highlighted that while digital assets currently represent only 1% of global financial assets, their interconnectedness with traditional markets, particularly in the U.S., is increasing. Cazenave emphasized that shocks in small markets can catalyze broader stability problems in the financial system. She also pointed out the risks associated with stablecoins, exchange-traded crypto funds, and incidents such as hacking attacks and major scandals.
Despite the EU's launch of the MiCa regulatory act, which Cazenave described as a "breakthrough," she called for increased monitoring of the industry. She noted that even strict regulation does not make cryptocurrencies completely safe, underscoring the need for continuous vigilance and oversight. The European Insurance and Pensions Authority (EIOPA) has proposed a new requirement for insurers to hold capital fully equal to the value of their investments in crypto-assets. This measure aims to protect customers from the risks associated with the volatility of cryptocurrencies such as bitcoin and Ethereum. The proposal, presented in a technical report for the European Commission, suggests "full 100% coverage of cryptoassets" as the best option, replacing the previous idea of 80% coverage, which was deemed insufficient due to the high risk of full depreciation of cryptocurrencies.
This requirement will be stricter than for other assets, such as equities and real estate, which have capital holding requirements of 39-49% and 25%, respectively. However, the share of cryptoassets in the insurance and reinsurance market is currently very small, amounting to about €655 million, or 0.0068% of all transactions in Europe. The majority of funds with crypto-assets are linked to mutual funds. The new requirement is expected to impact insurers from Luxembourg and Sweden the most, where the majority of insurance investments in cryptocurrencies are concentrated, at 69% and 21%, respectively.
