Explanatory Memorandum to COM(2021)422 - Information accompanying transfers of funds and certain crypto-assets (recast) - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2021)422 - Information accompanying transfers of funds and certain crypto-assets (recast). |
|---|---|
| source | COM(2021)422  |
| date | 20-07-2021 |
1. CONTEXT OF THE PROPOSAL
·Reasons for and objectives of the proposal
Money laundering and terrorism financing pose a serious threat to the integrity of the EU economy and financial system and the security of its citizens. Europol has estimated that around 1% of the EU’s annual Gross Domestic Product is ‘detected as being involved in suspect financial activity’ 1 . In July 2019, following a number of prominent cases of alleged money laundering involving credit institutions in the Union, the Commission adopted a package 2 analysing the effectiveness and efficiency of the EU Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) regime as it stood at that time, and concluding that reforms were necessary. In this context, the EU’s Security Union Strategy 3 for 2020-2025 highlighted the importance of enhancing the EU’s framework for anti-money laundering and countering terrorist financing in order to protect Europeans from terrorism and organised crime.
On 7 May 2020 the Commission presented an Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing 4 . In that Action Plan, the Commission committed to take measures in order to strengthen the EU’s rules on combating money laundering and terrorism financing and their implementation, with six priorities or pillars:
1. Ensuring effective implementation of the existing EU AML/CFT framework,
2. Establishing an EU single rulebook on AML/CFT,
3. Bringing about EU-level AML/CFT supervision,
4. Establishing a support and cooperation mechanism for FIUs,
5. Enforcing EU-level criminal law provisions and information exchange,
6. Strengthening the international dimension of the EU AML/CFT framework.
While pillars 1, 5 and 6 of the Action Plan are being implemented, the other pillars demand legislative action. This proposal for the recast of Regulation EU 2015/847 is part of an AML/CFT package of four legislative proposals that is considered as one coherent whole, in implementation of the Commission Action Plan of 7 May 2020, creating a new and more coherent AML/CFT regulatory and institutional framework within the EU. The package encompasses:
–a proposal for a Regulation on the prevention of the use of the financial system for the purposes of money laundering (ML) and terrorist financing (TF) 5 ;
–a proposal for a Directive 6 establishing the mechanisms that Member States should put in place to prevent the use of the financial system for ML/TF purposes, and repealing Directive (EU) 2015/849 7 ;
–a proposal for a Regulation creating an EU Anti-Money Laundering Authority (AMLA) 8 , and
–this proposal for the recast of Regulation EU 2015/847 expanding traceability requirements to crypto-assets.
This present legislative proposal, together with the proposal for a Directive establishing the mechanisms that Member States should put in place to prevent the use of the financial system for ML/TF purposes, and repealing Directive (EU) 2015/849 and the proposal for a Regulation on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing 9 , fulfils the objective of establishing an EU single rulebook (pillar 2).
Both the European Parliament and the Council lent their support to the plan set out by the Commission in the May 2020 Action Plan. In its resolution of 10 July 2020, the European Parliament called for strengthening Union rules and welcomed plans to overhaul the EU AML/CFT institutional set-up 10 . On 4 November 2020, the ECOFIN Council adopted Conclusions supporting each of the pillars of the Commission’s Action Plan 11 .
The need for harmonised rules across the internal market is corroborated by the evidence provided in the 2019 reports issued by the Commission. These reports identified that whereas the requirements of Directive (EU) 2015/849 12 are far-reaching, their lack of direct applicability and granularity led to a fragmentation in their application along national lines and divergent interpretations. This situation does not allow dealing effectively with cross-border situations and are therefore ill-suited to adequately protect the internal market. It also generates additional costs and burdens for operators providing cross-border services and causes regulatory shopping.
In order to prevent, detect and investigate their possible use for money laundering and terrorist financing, Regulation (EU) 2015/847 13 was adopted to ensure the full traceability of transfers of funds, ensuring the transmission of information throughout the payment chain, by providing for a system imposing the obligation on payment service providers to accompany transfers of funds with information on the payer and the payee. However, Regulation (EU) 2015/847 currently only apply to the transfer of funds, which are defined as “banknotes and coins, scriptural money and electronic money” in point (25) of Article 4 of Directive 2015/2366 of the European Parliament and of the Council 14 , not to the transfer of virtual assets. Indeed, it is only in 2018 that new international standards were adopted to create requirement for information sharing in transfer of virtual assets of the same nature that the ones existing for information sharing in transfer of funds.
Until now, transfers of virtual assets have remained outside of the scope of Union legislation on financial services, exposing holders of crypto-assets to money laundering and financing of terrorism risks, as flows of illicit money can be done through transfers of crypto-assets and damage the integrity, stability and reputation of the financial sector, and threaten the internal market of the Union as well as the international development of crypto-assets transfers. Money laundering, terrorist financing and organised crime remain significant problems which should be addressed at Union level.
Given that virtual assets transfers are subject to similar money laundering and terrorist financing risks as wire funds transfers, it is to requirements of the same nature they must also be submitted and it therefore appears logical to use the same legislative instrument to address these common issues. Regulation (EU) 2015/847 must therefore now be complemented to also cover virtual assets transfers adequately. Since further significative amendments are to be made to reach this goal, Regulation (EU) 2015/847 should now be recasted in the interests of maintaining its clarity.
·Consistency with existing provisions in the policy area
This proposal takes as its starting point the existing Regulation (EU) 2015/847 of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006, as amended by Regulation (EU) 2019/2175 of 18 December 2019 15 . This proposal must be seen as part of a package, with the other legislative proposals which accompany it, fully consistent with one another. This proposal is consistent with the latest amendments to the recommendations of the Financial Action Task Force (FATF), and in particular in relation to the expansion of the scope of entities subject to AML/CFT requirements to include virtual asset service providers and the mitigation of risks deriving from their activities.Thus, Payment Services Providers (PSPs) involved in transfer of funds have already the duty since several years to accompany their transfers of funds with information on the sender and the beneficiary of each transfer, and to keep this information available to competent authorities. These information sharing duties in the context of wire transfers are often referred to internationally as the ‘travel rule’, which was implemented within the Union law through Regulation (EU) 2015/847. Over the last years, growing concerns of money laundering and terrorism financing risks related to virtual assets conducted international standards setters and in particular the FATF to decide to align the regime of transparency already developped for payments services providers for transfer of funds to Virtual Asset Service Providers (VASPs) processing transfers of virtual assets 16 . The present proposal aims at introducing in EU law these new requirements of the VASPs, by providing an obligation for these actors to collect and make accessible data concerning the originators and beneficiaries of the transfers of virtual or crypto assets they operate.
To that end, this proposal amends Regulation (EU) 2015/847 of the European Parliament and the Council of 20 May 2015 on information accompanying transfers of funds, extending to crypto assets the information requirements currently applying to wire transfers, with the necessary adjustments needed due to the differences in some of their features.
To ensure the coherence of the EU legal framework, this regulation will use the definitions of ‘crypto-assets’ and ‘crypto-asset services providers’ (CASPs) laid down in the Commission proposal for a regulation on Markets in Crypto-assets 17 [[please insert reference – proposal for a Regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937-COM/2020/593 final] . The definition of ‘crypto-assets’ used in this proposal also corresponds to the definition of ‘virtual assets’ set out in the recommendations of Financial Action Task Force (FATF), and the list of crypto-asset services and crypto-asset services providers (CASPs) covered in this proposal also encompasses the virtual asset services providers (VASPs) identified as such by the FATF and that are likely to raise money-laundering concerns.
·Consistency with other Union policies
In addition to amending Regulation (EU) 2015/847, this proposal is consistent with EU other legislation on payments and transfers of funds (Payment Services Directive, Payment Accounts Directive, Electronic Money Directive 18 ). It complements the Commission’s recent Digital Finance Package of 24 September 19 and will ensure full consistency between the EU framework and FATF standards.
The EU’s Security Union Strategy of July 2020 mentioned that the Commission would also support the development of expertise and of a legislative framework in emerging risks, such as crypto-assets and new payment systems. In particular, the Commission will look at the response to the emergence of crypto-assets such as bitcoin and the effect these new technologies will have on how financial assets are issued, exchanged, shared and accessed.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
·Legal basis
With respect to legislation which amends existing legislation, it is important also to take into account, for the purposes of identifying its legal basis, the existing legislation that it amends and in particular, its objective and content 20 This proposal for a regulation is based on Article 114 TFEU, the same legal basis as the current Regulation (EU) 2015/847, which it amends, and the same as the EU AML/CFT legal framework 21 . Where a legislative act has already coordinated the legislation of the Member States in a given EU policy area, the EU legislature cannot be denied the possibility of adapting that act to any change in circumstances or advances in knowledge, having regard to its task of safeguarding the general interests recognised by the TFEU Treaty and of taking into account the overarching objectives of the European Union laid down in Article 9 of that Treaty 22 . Indeed, in such a situation, the EU legislature can properly carry out its task of safeguarding those general interests and those overarching objectives of the European Union recognised by the Treaty only if it is open to it to adapt the relevant EU legislation to take account of such changes or advances 23 . Article 114 remains appropriate for amending legislation on AML/CFT to adapt to changes in circumstances and development of experience such as the increasing emergence and use of crypto-assets in view of the continuous significant threat to the internal market caused by money laundering and terrorism financing, and the economic losses and disruption on a cross-border level which it can create.
·Subsidiarity
The 2019 Commission AML package 24 highlighted how criminals have been able to exploit the differences among Member States’ AML/CFT regimes. The cross-border nature of much money laundering and terrorism financing (ML/TF) makes good cooperation between national supervisors and FIUs essential to prevent these crimes. Many entities subject to AML obligations have cross-border activities, and different approaches by national supervisors and FIUs hinder them in achieving optimal AML/CFT practices at group level. In particular, cross-border transfers of funds and of values between EU Member States can only be effectively regulated at EU level.
Transfers of virtual assets fall today outside of the scope of Union legislation on financial services. The lack of such rules leaves holders of crypto-assets exposed to money laundering and financing of terrorism risks, as flows of illicit money can be done through transfers of crypto-assets and damage the integrity, stability and reputation of the financial sector, and threaten the internal market of the Union as well as the international development of crypto-assets transfers. Money laundering, terrorist financing and organised crime remain significant problems which should be addressed at Union level.
Since the objectives of this Regulation cannot be sufficiently achieved by the Member States but can rather, by reason of the scale or effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU).
·Proportionality
The cross-border nature of ML/TF requires a coherent and coordinated approach across Member States based on a single set of rules in the form of a single rulebook. Thus, EU rules are not fully consistent with the latest international standards, that have evolved since the latest amendment to the AMLD, as they fail to cover the traceability of the virtual assets transfers and the information sharing obligations between crypto assets services providers, as current EU rules, as laid down in Regulation (EU) 2015/847 only apply to wire trasnfers involving funds as defined in point (25) of Article 4 of Directive (EU) 2015/2366. In their recent joint opinion 25 the EU supervisory authorities identified specific risk-increasing factors in respect of new business models and products (i.e. fintech), first of which is the provision of unregulated financial products and services that do not fall within the scope of AML/CFT legislation. In accordance with the principle of proportionality as set out in Article 5 of the Treaty on European Union (TEU), this Regulation does not go beyond what is necessary in order to achieve those objectives.
·Choice of the instrument
Current EU rules laid down in Regulation (EU) 2015/847, were adopted to ensure that the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation adopted by FATF on 16 February 2012 (the ‘revised FATF Recommendations’), and, in particular, FATF Recommendation 16 on wire transfers (the ‘FATF Recommendation 16’) and the revised interpretative note for its implementation, are applied uniformly throughout the Union. But these rules only apply to funds (defined as “banknotes and coins, scriptural money and electronic money” in point (25) of Article 4 of Directive (EU) 2015/2366), which do not include crypto-assets, and they must therefore now be completed adequately.
A Regulation of the European Parliament and of the Council is an appropriate instrument for introducing in the Union law the so-called “travel rule” of FATF recommendation 15, which requires on the one hand that originating CASPs obtain and hold required and accurate crypto-assets transfers originator information and required crypto-asset transfers beneficiary information , submit the above information to the beneficiary CASP or financial institution (if any) immediately and securely, and make it available on request to appropriate authorities (i) and, in the other hand, that beneficiary CASPs obtain and hold required originator information and required and accurate beneficiary information on crypto-asset transfers and make it available on request to appropriate authorities (ii). This regulation amending Regulation (EU) 2015/847 is part of a single rulebook, being directly and immediately applicable, and thus removing the possibility of differences in application in different Member States due to divergences in transposition technique.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
·Ex-post evaluations/fitness checks of existing legislation
Regulation (EU) 2015/847 has not been subject to an evaluation or fitness check to date. However, this should not prevent the rapid integration in the EU framework of FATF standards.
The new standards adopted by FATF in October 2018 introduced a new definition of ‘virtual asset’, and of ‘virtual asset service providers’ (VASPs), the implementation of which requires to modify Union law. Regulation [please insert reference – proposal for a Regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937-COM/2020/593 final]already provides a definition of ‘crypto-asset service’, which covers a list of services and activities to crypto-asset that reflects adequately the complete set of activities covered by the new FATF standards; and a definition of ‘crypto-asset’, defined as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology” and that should also correspond to the definition of ‘virtual assets’ set out in the recommendations of the Financial Action Task Force (FATF) 26 .
A further necessary alignment with the FATF standards consists in introducing into EU legislation the information-sharing obligations contained in the Interpretative note to recommendation 15 of FATF (the so called “travel rule”), which is the purpose of the present proposed regulation. As indicated above (see “Consistency with existing provisions in the policy area”) and to ensure the coherency of the EU legal framework, this regulation will use the definitions of ‘crypto-assets’ and ‘crypto-asset services providers’ (CASPs) contained within Regulation [please insert reference – proposal for a Regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937-COM/2020/593 final].
·Stakeholder consultations
The consultation strategy supporting the package of which this proposal is a part, was composed of a number of components:
- A consultation on the roadmap announcing the Commission’s Action Plan. The consultation, on the Commission’s Have Your Say portal, ran between 11 February and 12 March 2020, and received 42 contributions from a range of stakeholders;
- A public consultation on the actions put forward in the Action Plan, open to the general public and all stakeholder groups, launched on 7 May 2020, and open until 26 August. The consultation received 202 official contributions;
- A targeted consultation of Member States and competent AML/CFT authorities. Member States had the opportunity to give their views in various meetings of the Expert Group on Money Laundering and Terrorist Financing, and EU FIUs made input in meetings of the FIU Platform and via written papers. The discussions were supported by targeted consultations of Member States and competent authorities, using questionnaires;
- A request for advice from the European Banking Authority, made in March 2020; the EBA provided its opinion on 10 September;
- On 23 July 2020, the EDPS issued an opinion on the Commission’s Action Plan;
- On 30 September 2020, the Commission organised a high-level conference, bringing together representatives from national and EU authorities, MEPs, private sector and civil society representatives and academia.
Stakeholder input on the Action Plan was broadly positive. However, some European Union VASP representatives 27 claimed that the absence of a standardised global, open source and free, technical solution for the travel rule could lead to the exclusion of small actors from the crypto-assets market, with only important players being able to afford compliance with the rules. On the other hand, for obliged entities that are operating on a cross-border basis and are currently subject to divergent jurisdictional rules, significant compliance costs are generated by these differences, hence in the medium term harmonised rules would lead to cost-saving in compliance area, and for newly-covered entities, the additional costs would be mitigated.
·Collection and use of expertise
In preparing this proposal, the Commission relied on qualitative and quantitative evidence collected from recognised sources, including a Report with advice on crypto-assets from EBA issued on 9 January 2019 28 recommanding that the European Commission should take account of the latest FATF recommendations and any further standards or guidance issued by FATF as part of a holistic review of the need, if any, for action at the EU level to address issues relating to crypto-assets.
Information on enforcement of AML rules was also obtained from Member States via questionnaires.
·Impact assessment
This proposal is accompanied by an impact assessment 29 , which was submitted to the Regulatory Scrutiny Board (RSB) on 6 November 2020 and approved on 4 December 2020. The same impact assessment also accompanies two other legislative proposals which are presented together with the present proposal, a draft Regulation on AML/CFT, and a review of Directive 2015/849 on AML/CFT. The RSB proposed various presentational improvements to the impact assessment in its positive opinion; these have been made.
Regarding the introduction of the FATF “travel rule” into EU law, the impact assessment concludes that the easiest option would be to modify the transfer of funds regulation to also encompass transfers of virtual assets. The implementation of the “travel rule” introduce new specific requirements for both the newly-covered VASPs and those already covered in AMLD, requiring them to obtain, hold and share required and accurate information on virtual asset transfers users and make it available on request to appropriate authorities 30 . These specific obligations raise various technical challenges, as virtual assets services providers have to develop technological solutions and protocols allowing to collect and share this information, both between themselves and with the competent authorities. However, no precise estimated costs were provided, and it must be noted that this requirement will also bring benefits that are not easy to assess either: being the introduction of new global FATF standards which have to be applied simultaneously in several jurisdictions around the world, it will make easier the provision of cross-border services.
·Regulatory fitness and simplification
Although, as noted above, no formal ex-post evaluation or fitness check of existing EU AML/CFT legislation has yet taken place, a number of points can be made with regard to elements of the proposal which will bring further simplification and improve efficiency. In order to adress the money laundering and terrorist financing threats represented by crypto-assets, the proposed recast of Regulation (EU) 2015/847 will introduce an obligation for the crypto-assets services providers submitted to anti-money laundering and countering terrorism financing requirements in the Union legal framework, to collect and make accessible data concerning the originators and beneficiaries of the transfers of crypto-assets they operate. By providing harmonised and directly applicable rules in a Regulation, the proposed recast of Regulation (EU) 2015/847 will ensure that all crypto-asset service providers covered by Union law will comply with their information sharing duties in an harmonised way, remove the need for transposition work in the Member States and facilitate doing business for cross-border entities in the EU. This should also simplify cooperation between supervisors and FIUs due to the reduction in divergences between their rules and practices. These new rules will significantly enhance the monitoring of crypto-assets service providers, and, at the international stage, ensure compliance of the European Union and its Member States with the relevant measures called for in the FATF Recommendations.
·Fundamental rights
The EU is committed to ensuring high standards of protection of fundamental rights. Under article 15 of the current regulation, the processing of personal data under this Regulation is subject to Regulation (EU) 2016/679 of the European Parliament and of the Council 31 . Personal data that is processed pursuant to this Regulation by the Commission or EBA is subject to Regulation (EU) 2018/1725 of the European Parliament and of the Council 32 . The General Data Protection Regulation 33 will apply to CASPs as regards the personal data handled and attached to cross-border transfers of value using virtual assets.
4. BUDGETARY IMPLICATIONS
This Regulation has no budgetary implications.
5. OTHER ELEMENTS
·Detailed explanation of the specific provisions of the proposal
Contents
The proposal extends the scope of Regulation 2015/847 to include transfers of crypto-assets made by Crypto-Asset Service Providers (CASPs) in addition to the current provisions on transfer of funds. It aims at reflecting in EU law amendments made in June 2019 to Financial Action Task Force (FATF) Recommendation 15 on new technologies to cover ‘virtual assets’ and ‘virtual asset service providers’, and in particular new information obligations for the originator and beneficiary CASPs at the two ends of a crypto-assets transfer (the so-called ‘travel rule’) 34 .
The requirements of this regulation apply to CASPs whenever their transactions, whether in fiat currency or a crypto-asset, involve: (a) a traditional wire transfer, or (b) a crypto-asset transfer between a CASP and another obliged entity (e.g, between two CASPs or between a CASP and another obliged entity, such as a bank or other financial institution). For transactions involving crypto-assets transfers, all crypto-asset transfers are treated with the same requirements as for cross-border wire transfers, in accordance with the FATF Interpretative Note to Recommendation 16, rather than domestic wire transfers, given the risks associated to crypto-assets activities and CASP operations.
The crypto-asset service provider of the originator must ensure that transfers of crypto-assets are accompanied by the name of the originator, the originator’s account number, where such an account exists and is used to process the transaction; and the originator’s address, official personal document number, customer identification number or date and place of birth; the crypto-asset service provider of the originator must also ensure that transfers of crypto-assets are accompanied by the name of the beneficiary and the beneficiary’s account number, where such an account exists and is used to process the transaction.
The crypto-asset service provider of the beneficiary must implement effective procedures to detect whether the information on the originator is included in, or follows, the transfer of crypto-assets. The crypto-asset service provider of the beneficiary must also implement effective procedures, including, where appropriate, ex-post monitoring or real-time monitoring, in order to detect whether the required information on the originator or the beneficiary is missing.
The Regulation will enter into force on the twentieth day after publication in the Official Journal.
2015/847 (adapted)