EU Parliament Introduces New Crypto Tracing Laws and Regulations

new crypto tracing laws

By Shannon Power, 21st April 2022

The European Parliament is working on a new set of crypto tracking laws to boost the potential of crypto-assets in the EU and curb the potential threats posed by them. On the 31st March 2022, the European Parliament voted in favour of new rules that will trace and identify any crypto-asset transfers. This action is an attempt to prevent the use of these digital assets in money laundering and other illegal activities. The regulation of cryptocurrencies could be a healthy development for the industry allowing peace of mind for those who use and invest in crypto assets. This blog explores the proposed risks and rewards of cryptocurrency and how the EU Parliament’s new crypto tracing laws will attempt to tame and reduce said risks.

Crypto at a Glance

The rise of cryptocurrencies over recent years has become unavoidable. In 2017, Bitcoin showed the world its potential when the digital coin leapt to values of over $20,000 before dipping back down to earth. To understand the impact of cryptocurrency and why the European Parliament are looking to instate these new crypto tracking laws, we must learn what exactly crypto-assets and cryptocurrency are.


These are digital assets that can be used as a means of exchange or for investments. Crypto-assets are based on distributed ledger technology that enables transactions to be recorded securely by a network of computers. Unlike traditional banking, these are private exchanges that are not issued or guaranteed by a central bank or public authority.


A cryptocurrency is a form of digital or virtual currency first introduced in the form of Bitcoin in 2008 as an alternative to central bank-issued currencies. By 2020, there were 5,600 different cryptocurrencies with an estimated global value of €250 billion.

Cryptocurrency is secured by cryptography. In the simplest of terms, cryptography is a method used to send secure messages between two or more participants – whereby the sender encrypts a message using a key and algorithm that is then decrypted by the receiver. This method makes it nearly impossible to counterfeit or double-spend.

The Risks and Rewards

The mass use of crypto-assets and the technology behind them has proven to be both majorly promising as well as problematic. Anyone is free to use cryptocurrencies making them more accessible for investment, unlike setting up a bank account which requires documentation and other paperwork.

Part of the attraction of crypto-assets is the ability to avoid any form of central register or institution, enabling safe and simple transactions between two parties without an intermediary. However, this fact plus the lack of regulation creates substantial risks. When people are dealing in crypto-assets, they are not covered by EU consumer protection rules and a large number of these people are not well informed about the possible risks. The widespread use of crypto-assets without regulations drives financial instability, market manipulation, and financial crime. Crypto transactions are also largely anonymous meaning cryptocurrencies have begun to be used widely for criminal activities.

The Goal of the New Crypto Regulations in Europe

The European Parliament’s new crypto tracing law proposal means that crypto-asset transfers of any amount would need to be traced and the transaction information to be made available to the competent authorities in the same way that traditional money is. Members of parliament from both the Economic & Monetary Affairs Committee and the Committee of Civil Liberties voted 93 in FAVOUR and 14 AGAINST the provision that all crypto assets would have to include information on the source of the asset and its beneficiary.

In hopes to encourage the development and use of these technologies, the new crypto rules aim to provide legal certainty, support innovation, protect consumers and investors, and ensure financial stability. These rules are part of the EU’s anti-money laundering package, which sets out measures to strengthen the EU in combating money laundering and terrorist financing.

The European Banking Authority is being pushed to create a public register of high-risk businesses and services involved in crypto. The providers must verify that the crypto-asset source has no association with money laundering or terrorism financing before making it available to the beneficiaries. Businesses dealing with crypto-assets will be required to better inform consumers about risks, costs, and charges.

The new requirements also cover transactions from “un-hosted wallets”, or crypto wallets held by a private user. However, the tracing rules do not apply to person-to-person transfers conducted without a provider, such as Bitcoin trading platforms, or among providers acting on their behalf.

Crypto Around the World

Individually, each country across Europe has their own stance and laws regarding cryptocurrency. Whilst there are many for the increased use of crypto, some governments are hesitant about its risks and are unsure of how to regulate it.

For example, France’s government policy is highly supportive of the development of cryptocurrency, provided that it is regulated correctly. In May 2019, the PACTE Law introduced a specific regulation for digital asset service providers (DASP) and initial coin offerings (ICOs) in the French Monetary and Financial Code (MFC). The French DASP regime is one of the most demanding and comprehensive in the European Union and is thus already in line with the future Markets in Crypto-Asset regulation.

In comparison, the UK is currently an outlier in Europe in the digital asset space, as it does not have any regulatory framework when it comes to cryptocurrency. It is believed that Chancellor Rishi Sunak will announce a new regulatory regime for crypto with a focus on stablecoins. This is a less volatile type of cryptocurrency backed by more traditional asset classes such as gold or cash.

As it currently stands, the UK is a European leader in terms of the numbers of companies operating in fintech and new fintech endeavours starting. However, complications arising from Brexit may lead to the loss of ground between the UK and the likes of Germany and France as one of the world’s favourite destinations for establishing a fintech endeavour.

However, countries such as Malta are miles ahead in terms of establishing themselves as early pioneers in the economic innovation of cryptocurrency. Malta was the first country in the world to lay out crypto regulations for operators in the blockchain, virtual currency, and DLT space. They were the first and only country to introduce an organised framework for cryptocurrency used to help combat money laundering and financial crime through its Malta Financial Services Authority. This makes Malta a highly attractive destination for those looking to set up new fintech endeavours within Europe.

Got a Fintech Idea?

It is important to research the differing regulations and laws to find what works best for you if you are interested in establishing a new fintech or crypto-related venture within a country in Europe. The specialists here at Euro Company Formations can facilitate company formation within 70 jurisdictions within Europe and worldwide. Get in contact with us today to get started!


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