To comply with the EU’s restrictive measures regimes, crypto-asset service providers that conduct transfers must select a screening method.
Two sets of guidelines, one tailored to payment service providers (PSPs) and crypto-asset service providers (CASPs), were released by the European Banking Authority (EBA), Europe’s regulatory body responsible for correcting banking industry flaws.
The EBA published guidelines that outline what PSPs and CASPs must do to adhere to national and EU restrictive measures regimes when transferring cash or cryptocurrency on November 14. The EBA claims that the rules guarantee the application of national and EU sanctions. The EBA wrote:
“These Guidelines clarify how restrictive measures policies and procedures interact with financial institutions’ wider governance and risk management frameworks, to avoid operational and legal risks for financial institutions and ensure an effective implementation of restrictive measures.”
The EBA stated that financial institutions, including PSPs and CASPs, may be exposed to legal and reputational risks due to internal rules, processes, and control deficiencies.
Furthermore, the efficacy of the EU’s restrictive measures regimes may be “undermined” by financial institutions’ shortcomings in these areas. The EBA noted that the stability of the European Union’s financial system could be impacted by rule-breaking.
The ECA states that the rules will be effective on December 30, 2025.
Crypto companies are required to abide by the EU’s stringent regulations.
The EBA requires PSPs and CASPs that conduct fund or cryptocurrency transfers to select a trustworthy screening system that will enable them to fulfill their “restrictive measures” responsibilities.
To control the risks of organizations or people breaking the EU’s restrictive measures, the guidelines also require PSPs and CASPs to screen information. Furthermore, PSPs and CASPs have to control the possibility that users will get beyond the limitations imposed by EU regulators.
The rules’ background and legal foundation
According to the EBA, the European Commission released a legislative package in 2021 to update the EU’s framework for combating the financing of terrorism (CFT) and anti-money laundering (AML). This includes suggestions for new guidelines regarding information on cryptocurrency and money transactions.
The rules will go into effect on December 30, 2024, having been adopted on June 9, 2023. The regulations also require the EBA to guide and assist financial institutions in adhering to future laws.