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Adoption of TFR in the European Parliament: the fight against financial crime should not be a fight against crypto-assets

Paris, 31 March 2022 – This afternoon, the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice and Home Affairs (LIBE) of the European Parliament jointly adopted their compromise report on the proposed recast of Regulation (EU) 2015/847 (known as “TFR”) which extends the requirements related to fund transfers to crypto-assets. The version of the text approved confirms – perhaps without knowing it – the will of the Parliament to deprive Europe of this innovation.

Adan reaffirms its commitment to the fight against any use of crypto-assets for the purposes of money laundering, terrorist financing and acts of organized crime.

In this respect – and although any technological innovation opens a new breach into which criminal activities rush – crypto-assets are much more a tool in the fight against fraudulent financial activities than an obstacle to it.

Crypto-assets, support in the fight against financial crime

The traceability that intrinsically characterizes blockchain technologies makes it possible to fully follow a chain of transactions and therefore to make a relatively easy link between an illicit operation and its author.

Also, the holding of a large majority of crypto-asset transfers is based on pseudonymity. In this respect, their use in cases of malicious financing has contributed more to guide the intelligence services in their investigations than to complicate them.

Relying on the recording of transactions on public and transparent ledgers, the industry has seen the emergence of technological solutions that scan financial flows and derive “transactional analysis” from them. Such properties are enough to deter criminals. As proof, the share of fraudulent transactions in the total of transactions in crypto-assets has continued to decrease since their creation. It thus appears that the share of fraudulent transactions out of all crypto-asset transactions fell from 3.37% in 2019 to 0.62% in 2020 and 0.15% in 2021.

In addition, it should be noted that in France, digital asset service providers (PSAN) who regularly act as intermediaries in crypto-asset transactions are exemplary. Since the entry into force of the law relating to the growth and transformation of companies (PACTE) in May 2019, they must indeed register with the Autorité des marchés financiers (AMF), according to a procedure which requires involvement and rigor in the fight against money laundering and the financing of terrorism. As such, they comply with regulatory requirements that are sometimes stricter than traditional banking and financial players.

TFR, another blow to a strategic sector for Europe’s financial sovereignty

Following the latest Financial Action Task Force (FATF) guidelines, the European Union wants to broaden the scope of the “travel rule”, i.e. an obligation to sharing information related to transactions, in order to integrate crypto-assets. Such a measure poses many difficulties, particularly in its practical implementation, the governance of personal data and the right to privacy.

In addition, the amendments adopted today further worsen the state of the text and could dangerously undermine the development of the crypto-asset sector in Europe. The current version of the Regulation significantly extends its scope and effectively hinders European users’ ability to interact with the non-fungible token (NFT) market – blocking access to digital value, finance protocols decentralized – synonymous with financial inclusion – and micropayment solutions via crypto-assets – synonymous with financial autonomy and inclusion.

  • The extension of the travel rule to transactions involving PSANs and private wallets (unhosted wallets) seems on the one hand inapplicable and on the other hand considerably excessive.
  • The application of the travel rule from the first euro to transfers of crypto-assets seems deleterious and unjustified in view of the exemption enjoyed by traditional fund transfers.
  • The obligation for the PSANs to verify the accuracy of the information collected during the transfer does not, on the one hand, fall within their field of competence and, on the other hand, seems impossible for many transfers of crypto-assets without a technological solution is operational first.

A more measured and pragmatic approach to be adopted in the further examination of the text

The legitimate emotion aroused by the current geopolitical context cannot and must not be the sole compass of our action, leading to legislating quickly rather than legislating effectively. As such, Adan calls for the adoption of a proportionate and appropriate approach in the continuation of the debates related to the revision of TFR, which takes greater account of the reality of the crypto-asset sector both in terms of its opportunities than its maturity.

Necessarily, care must be taken not to automatically expose European companies to a risk of non-compliance, as they do not have the technical means to apply the regulations. It would also be desirable for the institutions to stimulate partnerships aimed at developing and financing a European and resilient solution allowing the Regulation to be applied calmly to the crypto-asset sector. The technologies attached to crypto-assets must be better understood and used as a vector of financial security in order to appropriately fulfill the objectives targeted by the text.

To build a Europe at the forefront in the digital sector, it must imperatively support the development of its companies based on disruptive technologies.

“By competing in this international race on one leg – that of unbalanced regulation to the detriment of support for innovation – Europe is jeopardizing the competitiveness of a strategic sector for its digital sovereignty” warns Faustine Fleuret, President of Adan.

About Adan

Adan (Association for the Development of Digital Assets) brings together crypto-asset and blockchain professionals in France and Europe. Its members cover many activities: markets, custody, payments, management, analysis tools, support for projects and users. Adan’s mission is to unite the digital asset industry and promote its development in the service of a new digital economy. To this end, the association has technical expertise in digital assets and maintains close dialogue with public authorities and professional associations.

Contact :
Faustine Fleuret, President and CEO – [email protected]
Mélodie Ambroise, Head of Strategy and Institutional Relations – [email protected]
Hugo Bordet, Regulatory Affairs Manager – [email protected]

Website: https://adan.eu
Twitter: @adan_asso