The European Parliament has passed new laws that mandate crypto-asset service providers (CASPs) to conduct due diligence measures and identity checks on their customers. This regulatory development, approved on April 24, is part of the broader Markets in Crypto-Assets (MiCA) regulation, which was developed by the European Commission last year and approved in June 2023 to govern cryptocurrency assets within the European Union.

Under the new framework, all entities operating within the EU jurisdiction, including cryptocurrency exchanges, will be required to flag and report suspicious activities to the government. This measure is designed to combat money laundering and other illicit financial activities that may be facilitated through the use of cryptocurrencies.

The new law also necessitates the creation of a new entity called the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA). Headquartered in Frankfurt, Germany, this supervising body will be responsible for overseeing the implementation of the new regulations across the European Union.

Patrick Hansen, the EU strategy and policy director at Circle, a prominent cryptocurrency company, provided further insights into the matter. He mentioned that CASPs will be required to adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures as part of their due diligence obligations.

According to Hansen, if CASPs comply with these regulations, crypto users in the EU would be able to use these platforms "for buying goods & services with crypto," provided that the transaction value exceeds EUR 1000 (approximately $1072). This move could potentially boost crypto-powered microtransactions within the EU, benefitting crypto payment companies like Strike, which recently expanded its services for European customers.

However, Hansen clarified that the requirement for KYC and AML compliance was already in place through existing regulations. All wallet providers and cryptocurrency exchanges operating within the EU were already mandated to comply with these regulations.

"Previous versions of the proposed AMLR, proposed a way stricter approach that would have meant a KYC on the self-custody originator/beneficiary, but also thanks to industry efforts a risk-based approach with various options was finally agreed on," he added.

Hansen noted that the law would be officially adopted by the Council of the EU and will be enforced three years later. In his assessment, the final version of the law represents a "positive result" for the cryptocurrency sector, which has largely operated in a regulatory gray area thus far.

The introduction of these new regulations underscores the EU's commitment to fostering a secure and transparent environment for the adoption of cryptocurrencies. By mandating due diligence measures and identity checks, the European Parliament aims to strike a balance between promoting innovation in the crypto space and safeguarding consumers and financial systems from potential risks.

Acceptance, regulatory frameworks like MiCA will play a crucial role in establishing clear guidelines and fostering trust among stakeholders. By ensuring that crypto businesses adhere to strict compliance standards, the EU is paving the way for responsible growth and widespread adoption of digital assets within its jurisdiction.