The EU Parliament, the Council and the Commission reached a tentative agreement on the Funds Transfer Regulations (TOFR) on June 29. The TOFR is part of the regulatory framework that the EU has set for cryptocurrency regulation.
At the time of implementation, the EU Cryptocurrency Service Provider (CASP) is obliged to comply with the rules and adjust internal policies and procedures accordingly.
This rule takes effect 18 months after the MiCA rule is applied.
Crypto Wild West Regulations
TOFR has introduced some anti-money laundering rules that try to collect data on cryptocurrency transactions.
A series of Tweet Regarding the tentative agreement, EU Parliamentarian Ernest Utasun named the agreement a response to the “Western Unregulated Cryptocurrency.”
According to him, the TOFR rules apply to all transactions, even below the euro. Includes transactions performed at crypto ATMs. In addition, CASP needs to collect data about unhosted wallet transactions. This data includes transactions made to unhosted wallets and transactions received from unhosted wallets.
The rule further requires that the ID of the owner of the unhosted wallet be validated in transactions above 1000 €. These rules for unhosted wallets seem to be informed by the idea that illegal actors use them primarily to encourage crime.
Another potential topic of controversy that could lead to these regulations is a report on Russia using cryptocurrencies to circumvent financial sanctions. As part of these rules, CASP must operate in compliance with the economic sanctions imposed by the EU.
However, the rule does not apply to peer-to-peer (P2P) transactions. In short, implementing TOFR rules can lead users who are uncomfortable with data collection to move to P2P transactions.
The rule also regulates the relationship between digital asset providers and CASP in Third World countries, especially when these providers are unregulated and unlicensed.
When it comes to rules, EU policy makers Ondřej Kovařík Tweet:
EU agencies have found a tentative political agreement on restrictions on the transfer of funds. I believe we have the right balance to mitigate the risk of fighting money laundering in the crypto sector without hindering innovation or straining our business. pic.twitter.com/k0P0I3Ah6K
—Ondřej Kovařík (@OKovarikMEP) June 29, 2022
Cryptocurrency providers protect the data collected in transactions and make it available in the EU
Concerns about TOFR rules
The EU has recently stepped up its efforts to implement a regulatory framework for cryptocurrency activities. Several institutional crises recorded in the crypto market since 2022 further exacerbate this need.
However, experts and analysts believe that regulations are trying to curb the use of cryptocurrencies in the EU. Concerns also reflect that TOFR rules constitute a violation of citizens’ right to privacy.
Many believe that rather than supporting the growth of cryptocurrencies, regulations will slow blockchain development in the EU and curb innovation. Another potential negative impact is that cryptographic exchange activity can be unnecessarily slow and costly because data about all transactions needs to be collected.
Similarly, the security of the collected data has been criticized. Many believe that pooling data with CASP and government can be vulnerable to attacks.
The European Agency, the European Commission, and the European Banking Authority are some of the EU institutions that have been attacked in the past.