European Union to Vote on Proposal That Could Make Things Difficult for Non-Custodial Wallets

The crypto industry has responded in force since the proposal began making the rounds.

By Shomik Sen Bhattacharjee | Updated: 29 March 2022 14:57 IST

European Union to Vote on Proposal That Could Make Things Difficult for Non-Custodial Wallets

Photo Credit: Unsplash/ olieman.eth

Ledger is a popular non-custodial, affordable crypto wallet

Highlights

EU recently tried to ban proof-of-work digital assets
EU is expected to vote on a TFR revision on March 31
MetaMask is a popular non-custodial wallet

The European Parliament, one of three legislative branches of the European Union, is expected to vote on a revised anti-money laundering (AML) legislation this week that would force crypto exchanges to share details of their customers' anonymous transactions. Several amendments to the current EU's Transfer of Funds Regulation are expected to be voted at the end of March 2022, including a proposal that forces crypto transfers to report to relevant authorities every crypto transfer made from an unhosted wallet that is over EUR 1,000 (roughly Rs. 83,600).

Unhosted wallets, such as MetaMask, refer to digital wallets that neither come under the purview of the Financial Action Task Force (FATF) nor under its definition of a licensed virtual asset service provider (VASP). Another provision within the document also seeks an obligation of financial institutions to accompany transfers of funds with information of the payer and recipient, even when the recipient isn't a customer of a particular VASP.

The amendments have been harshly criticised by various industry figures, as they may lead to a strong surveillance regime on exchanges like Coinbase and undermine self-hosted wallets that individual customers create to securely protect their digital assets and investments.

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If the bills are adopted by the EU Parliament, most crypto companies may not be able to transact with unhosted wallets to remain compliant and continue operating in the EU.

Coinbase's Chief Legal Officer Paul Grewal states that the changes are based on “bad facts” in the way regulators view crypto as a vehicle for criminal activity.

“Among the worst of the proposed provisions are new obligations on exchanges to collect, verify and report information on non-customers using self-hosted wallets,” said Grewal. “For instance, one provision requires exchanges to not only collect personal data about wallet users who are not their customers, but to also verify the data's accuracy before allowing a transfer to one of their customers.”

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“If adopted, this revision 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,” Grewal said.

Grewal's comments arrive right after the exchange's announcement that it will require its customers in Singapore, Japan and Canada, who are sending crypto to another exchange, to provide information about their transfers including recipients' names and addresses.

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