Consider DLT Use When Judging Money Laundering Risks, EBA Advises Supervisors

European Union supervisors should consider whether crypto-style distributed ledger technology (DLT) is in use as a specific factor when judging money laundering risks, the European Banking Authority has suggested in draft guidance published Wednesday.

The guidance suggests banks and payment providers will be under pressure to enhance scrutiny of crypto companies when considering a client relationship, even amid concerns the blockchain industry is losing access to conventional finance.

Under existing guidance, national authorities need to gather information on individual sectors of the economy to inform their assessment of money laundering threats. That includes the type of customers they have and their linkage with financial crime at home and abroad.

To that list, the draft proposes, should be added an assessment of “the (infrastructure) technology prevalent in the sector, in particular where this is essential to the sector’s business model and operation (such as Distributed Ledger Technology)," referring to the system that underpins the blockchain, and hence most cryptocurrencies.

The Transfer of Funds Regulation, a new EU rule ensuring participants in crypto transactions are identified, is due to be voted on in April – and the bloc’s banking watchdog is already straining at the leash to fill in how to implement those laws.

When vetting senior staff at crypto companies, supervisors should follow existing “fit and proper” procedures intended for banks, even before landmark new licensing rules contained in the EU’s Markets in Crypto Assets regulation, MiCA, take effect, the guidance said.

While the European Commission has long said similar activities posing the same risks should get the same rules, the move takes place amid worries about large scale de-banking of the crypto sector. In the U.S., regulators have rejected claims that the shutdown of Signature Bank was due to a crackdown on crypto-friendly lenders.

The guidance is open for consultation until June 29.

Read more: EU Lawmakers Vote in Favor of Payment Limits on Anonymous Crypto Wallets