The EU’s EBA mandates identity verification for crypto transactions under MiCA framework, targeting privacy coins like Monero, while the UK’s FCA proposes bans on leveraged crypto purchases after retail losses surge 140% in Q1 2024.
European regulators escalated crypto oversight this week as the EBA unveiled binding identity checks for all transactions under MiCA (18 June 2024), while Britain’s FCA reported £230M in Q1 retail losses linked to leveraged crypto bets – prompting unprecedented credit restrictions.
EU Targets Privacy Coins in Landshift AML Overhaul
The European Banking Authority’s 214-page draft technical standards, published Tuesday, require Crypto Asset Service Providers (CASPs) to collect verified identities for every transaction involving self-hosted wallets. Transactions above €0 for regular users – or $1,000 for occasional participants – must include proof of identity under rules set for full implementation by January 2027.
Piero Cipollone, ECB Executive Board member, stated during a 19 June press briefing: ‘The DeFi sector cannot remain a lawless frontier. Travel Rule compliance is non-negotiable for market access.’ The measures explicitly name privacy-focused cryptocurrencies like Monero, Zcash, and Grin as ‘high-risk assets’ requiring enhanced due diligence.
UK Moves to Curb Crypto Leverage Amid Retail Losses
Parallel developments emerged from London, where the Financial Conduct Authority revealed that 30% of UK retail crypto purchases in 2023 involved borrowed funds. Proposed rules published 20 June would ban ‘Buy Now, Pay Later’ crypto services and require affordability checks for margin trading.
FCA data shows losses from leveraged crypto positions surged to £230 million in Q1 2024 – a 140% year-on-year increase. ‘We’re seeing consumers gamble with money they don’t have on assets they don’t understand,’ said FCA markets executive director Sarah Pritchard during the announcement.
Industry Backlash and Technical Challenges
Monero’s core development team responded swiftly, declaring in a 16 June blog post: ‘Privacy protocols will evolve beyond centralized choke points. Our work on atomic swaps and decentralized exchanges continues unabated.’ Blockchain Europe, an industry lobby group, warned of potential capital flight to jurisdictions like Switzerland and Singapore.
Technical experts question the feasibility of enforcing privacy coin bans. ‘You can blacklist Monero on regulated exchanges, but peer-to-peer networks and decentralized protocols exist outside these controls,’ noted University of Cambridge cryptographer Dr. Eleanor Marsh in an interview with Reuters.
Global Regulatory Momentum Builds
The U.S. Treasury Department’s 20 June report on illicit finance endorsed similar measures, urging Congress to expand authority over privacy coin developers. This transatlantic alignment follows the FATF’s updated guidance requiring Travel Rule implementation across 200 member jurisdictions.
ECB’s Cipollone emphasized coordination during his remarks: ‘Our American counterparts recognize the same risks. You’ll see harmonized rules across major economies by 2027.’
Historical Context: Crypto’s Regulatory Reckoning
Current measures echo previous financial crackdowns. In 2021, Bitcoin’s price surged 150% following institutional adoption, only to crash 65% when regulators began scrutinizing leveraged derivatives. The 2017 ICO boom similarly collapsed after SEC interventions, with projects like Tezos facing securities lawsuits.
The privacy coin debate mirrors earlier conflicts over encryption. In the 1990s, the U.S. government attempted to restrict strong cryptography exports – a policy reversed in 2000 after industry protests. Today’s regulators face analogous challenges balancing security and innovation.
Technological Precedents and Market Evolution
Just as China’s mobile payment revolution in the 2010s required infrastructure upgrades, current regulatory pressures may accelerate crypto’s technical evolution. The rise of zero-knowledge proofs and regulatory-compliant privacy solutions like Aztec Protocol demonstrate how innovation often adapts to constraints.
Market data suggests bifurcation underway: Coinbase reported a 300% Q2 increase in institutional crypto custody, while decentralized exchange Uniswap saw daily volumes surpass $2 billion despite regulatory uncertainty. This divergence hints at a future where regulated and permissionless systems coexist.
