A new handbook published by crypto advocacy group European Crypto Initiative (EUCI) warns that EU regulators will ban anonymous crypto accounts and privacy coins by 2027, according to the terms of the recently adopted Anti-Money Laundering Regulation (AMLR).
The AMLR went active in July 2024, but will not fully go into force until July 1, 2027. The new rules will impact credit institutions, financial institutions and crypto asset service providers (CASPs), who very likely will entirely remove support for privacy coins such as Zcash and Monero. The primary rationale is the popularity of these instruments in terrorism financing and cybercrime, where they are often demanded as ransom payments, but bloc governments also have other considerations.
AML directive leaves little room for anonymous crypto accounts
The ban stems from Article 79 of the AMLR, which imposes broad restrictions on anonymous financial accounts of all sorts. The fine details of the rules are not quite set yet, however, with implementing and delegated acts yet to come from the European Banking Authority (EBA) that will flesh out the interpretation of requirements following a period of public feedback.
But there are some finalized rules that will apply to crypto accounts handled by CASPs, at least those that operate in at least six EU member states. That “materiality threshold” will put them under direct AML supervision; CASPs may also be subject to this regulation if they have over 20,000 customers in the host member state or an annual transaction volume of over 50 million euros. A new law enforcement entity called the “Anti-Money Laundering Authority (AMLA)” will be formed to oversee CASPs that meet these thresholds.
The EUCI believes that there will be little to no change to the rules governing privacy coins and anonymous crypto accounts, even though the EBA is still technically in a public commentary and revision period. This gives impacted organizations only a little over two years to consider compliance implementation. That essentially means crypto will be regulated under the same terms as fiat currency across the bloc, to include having to collect identification and apply “know your customer” (KYC) standards to all those customers transacting in it.
Privacy coins likely to be banned in EU, though still accessible
EU regulators appear to be seeking to close off every possible route of financial transaction that could be conducted anonymously, to include things like safe deposit boxes and standard bank accounts. But it also seems to be focusing on amounts necessary for money laundering and ransom payments. While all of the major platforms would essentially have to forbid privacy coins and anonymous crypto accounts, many already do this voluntarily. Anonymity would still be possible in smaller transactions under $1,100 euro, and privacy coins would still be available to individual users not working through a regulated platform; there is no effective means to ban individual wallets or use of things like Monero.
Though the interest in curbing terrorism financing and money laundering is obvious, the focus on larger trading platforms may also be aimed at tackling rampant “pump and dump” schemes (which some studies in recent years have found make up as much as 24% of all new coin launches). Legal tools for addressing these scams are poor, as they commonly originate from and are funded by decentralized exchanges through which creators and scam participants can enjoy a great deal of anonymity. New transparency and disclosure requirements created by the new regulation would also provide added protections to buyers in this area.
Privacy coins like Monero have been increasing as of late as the currency of choice for ransomware demands, but Bitcoin is still the overwhelming favorite of these criminals. Improvements in law enforcement forensics analysis of “public traces” and blockchain patterns could push more cyber criminals toward fully anonymous crypto accounts and privacy coins in the near future, however. The other fork of this problem is legal attack on ransomware itself, and the concept of ransomware payment bans seems to have receded once again in the EU even as the UK and Australia give the prospect serious consideration. Even if a ban somehow emerged someday, criminals would likely press victims to use something like Monero as an alternative and keep all the involved crypto accounts off of exchanges.
Another key element is the harmonization of rules and regulations across EU member states, which at present sometimes treat crypto accounts very differently. Crypto is broadly legal throughout these states, but they vary in their legal frameworks for regulating it. This feeds into other state-managed initiatives such as the European Blockchain Strategy and European Blockchain Services Infrastructure (EBSI), which looks to use blockchains as an identity verification method and means of more readily accessing public benefits and services among other applications.
