Adoption of the TFR by the European Parliament: The fight against financial crime must not be a fight against crypto-assets

Paris, March 31, 2022 –This afternoon, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice, and Home Affairs (LIBE) jointly adopted their compromise report on the proposal to recast Regulation (EU) 2015/847 (known as the “TFR”), which extends the requirements for fund transfers to crypto-assets.  The adopted version of the text confirms—perhaps unwittingly—the Parliament’s intention to deprive Europe of this innovation.

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

In this regard—and although every technological innovation creates a new loophole that criminal activity rushes to exploit—crypto-assets are far more a tool for combating financial fraud than an obstacle to it.

Crypto-assets: A Tool in the Fight Against Financial Crime

The traceability that is an intrinsic feature of blockchain technology makes it possible to track an entire chain of transactions and thus to establish a relatively straightforward link between an illegal transaction and its perpetrator. 

Furthermore, the vast majority of crypto-asset transfers are conducted anonymously. In this regard, their use in cases of illicit financing has done more to guide intelligence agencies in their investigations than to complicate them.

Building on the recording of transactions in public and transparent ledgers, the industry has seen the emergence of technological solutions that scan financial flows and generate a “transactional analysis.” Such features are enough to deter criminals. As evidence, the share of fraudulent transactions in total crypto-asset transactions has been steadily declining since their inception. It 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 to 0.15% in 2021. 

It should also be noted that in France, digital asset service providers (DASPs) that regularly act as intermediaries in crypto-asset transactions are exemplary. Since the entry into force of the Law on Business Growth and Transformation (PACTE) in May 2019, these providers have been required to register with the French Financial Markets Authority (AMF) through a process that demands commitment and rigor in combating money laundering and terrorist financing. As such, they comply with regulatory requirements that are sometimes stricter than those for traditional banking and financial institutions.

TFR: Another blow to a sector critical to Europe’s financial sovereignty 

In accordance with the latest guidelines from the Financial Action Task Force (FATF), the European Union aims to expand the scope of the “travel rule”—that is, the requirement to share transaction-related information—to include crypto-assets. Such a measure poses numerous challenges, particularly regarding its practical implementation, the governance of personal data, and the right to privacy.

Furthermore, the amendments adopted today further worsen the text and could seriously undermine the development of the crypto-asset sector in Europe. The current version of the Regulation significantly broadens its scope and effectively hinders European users’ ability to interact with the market for non-fungible tokens (NFTs)—blocking access to digital value, decentralized finance protocols—which are synonymous with financial inclusion—and micropayment solutions via crypto-assets—which are synonymous with financial autonomy and inclusion. 

• Extending the travel rule to transactions involving PSANs and unhosted wallets seems, on the one hand, impractical and, on the other hand, considerably excessive.
• Applying the travel rule to crypto-asset transfers starting from the very first euro appears to be harmful and unjustified, given the exemption granted to traditional money transfers.
• The requirement for PSANs to verify the accuracy of the information collected during a transfer not only falls outside their scope of authority but also seems impossible for many crypto-asset transfers without a technological solution first being operational. 

A more measured and pragmatic approach should be adopted as the review of the text continues

The legitimate concern arising from the current geopolitical context cannot and must not be the sole guiding principle for our actions, leading us to legislate quickly rather than effectively. In this regard, ADAN calls for the adoption of a proportionate and appropriate approach in the ongoing discussions regarding the revision of the TFR, one that takes greater account of the reality of the crypto-asset sector in terms of both its opportunities and its maturity. 

It is essential to ensure that European companies are not automatically exposed to the risk of non-compliance simply because they lack the technical means to implement the regulations. It would also be desirable for the institutions to foster partnerships aimed at developing and financing a resilient European solution that would enable the Regulation to be applied smoothly to the crypto-asset sector. The technologies associated with crypto-assets must be better understood and utilized as a vehicle for financial security in order to effectively achieve the objectives set forth in the text. 

To build a Europe that is at the forefront of the digital sector, it is essential that it support the growth of its companies based on disruptive technologies. 

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