The European Union has decided to limit cash purchases of crypto coins to €10,000 and to provide more control on crypto transactions above €1,000. The committee announced this on 7 December. It stated that it was part of efforts to prevent money laundering.
New rule against loopholes
Czech Finance Minister Zbyněk Stanjura said their intention is to further close these loopholes and apply even stricter rules in all EU member states. Large cash payments over $10,000 will become impossible. Staying anonymous when buying or selling cryptocurrencies will also become much more difficult.
The new rules require crypto-asset service providers (CASPs) to conduct due diligence on clients transacting over $1,000. Self-hosted wallets are expected to increase their risk mitigation measures due to the advent of CASPs.
The EU also uses the Financial Action Task Force (FATF) country classification system to determine the money laundering risk in each Member State.
How will this affect DeFi?
It’s unclear how the new requirements will be implemented, as anonymity is an integral part of the DeFi space. However, it is expected that the rules will have an impact.
Regulators are likely targeting developers of the DeFi platform. This may not be of any consequence if the entity is not based in Europe and chooses not to cooperate. It can be even more difficult if a central entity does not control the DeFi protocol or if it is impossible to identify the crypto company behind it.
Report on DeFi commissioned by the EU
The risks of DeFi and the regulation of the sector are currently under review. A few months ago, the European Central Bank commissioned an investigation. The study recommended that DeFi regulation should cover DAOs, platform developers and holders of governance tokens.
Such a move could affect the growth of the DeFi sector in Europe. However, centralized crypto platforms will have no problem with it as they already implement these standards.
Regulators in Europe are also questioning whether the MiCA regulations due to take effect in 2024 could prevent a repeat of the FTX collapse.