EU Decision-Makers Kick Off Negotiations On Controversial ‘Unhosted Wallets’ Regulation
As the members of the European Parliament have launched the final round of negotiations on the controversial Transfer of Funds Regulation (TFR) today, the crypto industry hopes to impact the legislative proposal’s wording through a lobbying campaign aimed at the European Union’s lawmakers.
The legislation could put many crypto exchanges in jeopardy in the European Union, paving the way for a crackdown on so-called ‘unhosted wallets’ — the term institutions use to refer to regular wallets — a construct that bears little connection to the reality of day-to-day operations of such exchanges.
At this stage of the legislative process, informal tripartite discussions, also known as trilogues, could end with a provisional agreement on the draft legislation by the European Union institutions. A potential agreement would be informal, and it would need to be formally approved by each of the three institutions: the Parliament, the Council of the European Union, and the European Commission.
Patrick Hansen, Head of Strategy and Business Development at Unstoppable Finance, tweeted that,
“The negotiations normally last for a couple of months and the most controversial topics are usually addressed towards the end. The EU’s goal is to reach an agreement on the TFR by early summer.”
Some of the most contentious issues that divide the European Parliament and the Council of the European Union, which includes relevant ministers from the bloc’s 27 member states, are related to the verification of ‘unhosted wallets’, but also the reporting requirement for transfers of more than EUR 1,000 (USD 1,050) received from such wallets, Hansen said.
“Here again the Council is not 100% aligned with the demand of the EU Parliament,” he tweeted.
Moreover, European lawmakers want to speed up the TFR’s application, in particular in relation to the economic implications of Russia’s war against Ukraine, while the Council is demonstrating some legal concerns, according to Hansen.
The second trilogue meeting is scheduled for June 7.
Pascal Gauthier, CEO of hardware wallet maker Ledger, is one of the most vocal critics of the proposal, and he has warned that the TFR could shape Europe’s sovereignty and competitiveness in the digital world. A day before the final round of negotiations started, his company issued a policy proposal in which it calls on the EU to seize the Web 3 revolution and avoid misdirected regulation.
According to Ledger,
The TFR “could ultimately cost the European Union billions in economic damage, tens of thousands of jobs, and force the Web3 revolution out of the EU. Our paper details four alternative proposals that would build on the unique advantages offered by blockchain technology. Where the TFR offers Europeans less freedom, less privacy, less prosperity, and less effective law enforcement, our four proposals offer more of each.”
The paper introduces the following four recommendations to European decision-makers:
- never exceed the recommendations of the Financial Action Task Force (FATF);
- redesign the TFR to enable better use of blockchain analytics;
- re-launch the work on the Markets in Crypto Assets (MiCA) regulation with an emphasis on improving EU competitiveness and with sufficient input from technical experts;
- invest in public/private partnerships with the aim to develop and be first-to-market with a self-sovereign identity solution designed for Europe.