The EU's "Funds Transfer Regulation" is about to be voted on, outlining implementation timelines and worst-case scenario: restrictions on sending encrypted assets to wallets

The European Parliament is set to vote on the proposal for the "Funds Transfer Regulation," similar to the previous U.S. infrastructure bill. If passed, exchanges will be required to collect and verify non-customer personal data for transactions using self-hosted wallets. The CEO of Coinbase strongly criticized this, saying, "Imagine every time you pay rent, your bank has to report to authorities just because the amount is over 1,000 euros."

Regulation on Fund Transfers

According to The Block and sources familiar with the matter, the draft was completed on 3/28, submitted to the European Parliament's Committee on Economic and Monetary Affairs on 3/29, and will be voted on for the final amendments on 3/31. The leaked contents of the draft are as follows:

If users transfer cryptocurrencies to non-custodial wallets, service providers must collect, retain, and verify user information; for transfers to verified, known beneficiaries, service providers do not need to verify their information each time. Service providers must take measures to ensure that information verification does not cause undue delays in asset transfers.

Timeline of Implementation

Patrick Hansen, Chief Strategy Officer of Unstoppable Finance, provided more detailed information, summarized as follows:

1. Due to time constraints, significant amendments to the draft are unlikely.
2. The more opposition the Parliament receives, the more likely there will be changes to the final legislation in the trilogue discussions among the Parliament, the Committee, and the Council in a few months.

If the trilogue discussions do not result in any changes:

1. The legislation will take effect 20 days after being published in the EU Official Journal.
2. The crypto industry will have "9 months" for phased implementation and "18 months" for full compliance.
3. This means the regulations may come into effect in the third quarter, and the crypto industry must fully comply by early 2024.
4. 3 months after the legislation comes into effect, the European Banking Authority (EBA) will adopt implementing guidelines.
5. 1 year after the legislation comes into effect, the European Commission will review the regulations and amendments, including the possibility of restricting transfers to non-custodial wallets.
6. 3 years after the legislation comes into effect, the European Commission will submit a report on the implementation of the regulations, including the effectiveness and applicability of new technologies.

CEO of Coinbase's Comments

Brian Armstrong criticized the proposal on Twitter, stating that the proposal is anti-innovation, anti-privacy, violates law enforcement principles, and establishes a double standard between fiat and cryptocurrencies. This means that Coinbase would need to collect, store, and verify recipient non-customer information before allowing users to transfer funds.

He mentioned:

Every time you receive over 1,000 euros in cryptocurrency from a non-custodial wallet, regardless of any suspicious activity, Coinbase is required to report to authorities, similar to how the EU demands your bank to report every time you pay rent; imagine if you transfer money to your cousin for groceries, the EU would require the bank to verify your cousin's information before releasing the funds, how can banks comply? Banks will push back, and that's what we're doing.

Armstrong believes this penalizes cryptocurrency holders severely and violates human rights in a very worrying way, calling it a terrible decision, and urges to contact EU Parliament members via email to express opposition.