The European Banking Authority (EBA) closed its public consultation on revising guidelines for money laundering and terrorist financing (ML/TF) risk factors on August 31, 2023. The amendments aim to extend the scope to include crypto-asset service providers (CASPs). The EBA proposes common regulatory expectations for CASPs to identify and mitigate ML/TF risks, offering sector-specific guidance. The guidelines also advise CASPs on adjusting their customer due diligence based on these risks. The consultation is part of the EBA’s ongoing efforts to strengthen the EU’s anti-money laundering and counter-financing of terrorism (AML/CFT) defenses.
ConsenSys, the development lead for the widely-used MetaMask crypto wallet and a significant force in the blockchain sector, has formally responded to the European Banking Authority’s (EBA) recent consultation on anti-money laundering and terrorist financing guidelines. The company’s stance was publicized by Bill Hughes, a ConsenSys attorney, in a tweet dated August 31, 2023. Known on social media as @BillHughesDC, Hughes has a multifaceted background that includes roles at the Department of Justice (DOJ), the White House (WH), and law firm Sullivan & Cromwell LLP (S&C). He holds degrees from the University of Virginia School of Law (UVA Law) and Vanderbilt University (Vandy).
Self-Hosted Wallets Not a Risk Indicator
ConsenSys emphasized that the use of a self-hosted wallet should not be considered a risk factor requiring enhanced due diligence by banks. “We agree that a customer’s use of a self-hosted wallet was not, on its own, indicia of risk that necessitates enhanced due diligence of that customer by a bank,” Hughes stated. ConsenSys urged the EBA to explicitly include this point in its guidance.
Multiple Wallets Not Necessarily Suspicious
The company also contested the notion that the use of multiple self-hosted wallets or numerous public addresses should be treated as a red flag for money laundering. “Use of many wallets and addresses is entirely commonplace, and to some extent is precisely how the system is designed to work,” said Hughes. Treating such behavior as suspicious, ConsenSys argues, would invert normal anti-money laundering (AML) due diligence processes.
Transaction Limits and Risk Mitigation
ConsenSys further commented on the issue of transaction limits, stating that while services that do not limit the value or volume of transactions may pose a greater risk, banks should not be encouraged to set extraordinarily low limits to avoid enhanced due diligence scrutiny.
Embracing Technology for Compliance
Lastly, the company applauded the EBA for recognizing the role of new technologies like blockchain analytics in risk mitigation. “We would further encourage the EBA and other supervisors to be open to allowing technology, as it develops, to not just supplement standard due diligence mechanisms but replace them,” Hughes added.
Implications for the Industry
The response from ConsenSys comes at a time when regulatory scrutiny around cryptocurrency and blockchain technology is intensifying globally. The EBA’s guidelines are expected to have a broad impact on how financial institutions interact with blockchain technologies and cryptocurrencies.
ConsenSys’ commentary is particularly noteworthy given its role in the blockchain ecosystem. The company is known for its development of MetaMask, a popular Ethereum-based wallet.
ConsenSys’ response to the EBA’s consultation reflects broader industry concerns about the potential for overregulation to stifle innovation and impose undue burdens on users. It also highlights the evolving role of technology in compliance and risk mitigation, suggesting a future where traditional and blockchain-based financial systems can coexist more harmoniously.
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