Will crypto regulation help against the ransomware threat?

Combating money laundering and cybercrime
Will crypto regulation help against the ransomware threat?

providers on the subject

The European Regulation on Crypto Assets (MiCA) sees itself as regulating the risks associated with crypto assets. The regulatory framework aims to protect investors and maintain financial stability while enabling innovation and promoting the attractiveness of the crypto industry. But does MiCA also have an impact on cyber security?

The EU wants to prevent the misuse of crypto-assets by criminals.

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The EU is subjecting crypto-assets, crypto-asset issuers and crypto-service providers to a regulatory framework for the first time, according to the Council of the European Commission. The Markets in Cryptoassets (MiCA) proposal aims to create more clarity in the EU, as some member states already have national legislation for cryptoassets, while so far there is no specific legislative framework at EU level.

Bruno Le Maire, French Minister of Economy, Finance and Industrial and Digital Sovereignty, said: “Recent developments in this rapidly changing sector have confirmed the urgent need for EU-wide regulation. MiCA will better protect Europeans who have invested in these assets , prevent crypto-assets from being misused while being innovation-friendly so that the EU does not lose its attractiveness in this regard.”

The regulation will put an end to the Wild West that prevails in crypto-assets and strengthen the EU’s role as a norm-setter in digital matters. However, online criminals value this “wild west” in cryptoassets and abuse their special properties for their malicious purposes.

Make criminal money flows more transparent

One of the EU’s goals when it comes to regulating crypto-assets is to explicitly reduce the risks that crypto-assets pose (fraud, cyber-attacks, market manipulation).

When trading crypto-assets, citizens are not covered by EU consumer protection rules and are often not well informed about the risks, which could result in them losing money, according to the EU Parliament. Widespread use of cryptoassets without regulation can lead to financial instability, market manipulation and financial crime. As transactions are largely anonymous, cryptocurrencies are often used for criminal activities, the EU Parliament points out.

The new regulation aims to oblige companies dealing in crypto-assets to better inform consumers about risks, costs and fees. By regulating public offerings of crypto-assets, the rules will ensure financial stability, while other measures will target market manipulation, money laundering, financing of terrorism and other criminal activities.

In connection with the EU’s anti-money laundering package

As part of the new EU anti-money laundering package and in conjunction with the Markets in Crypto Assets Rules (MiCA), it aims to enable the tracing and identification of crypto asset transfers to prevent money laundering, financing of terrorism and other crimes. Crypto transfers should always be traceable and suspicious transactions blocked.

According to the EU Parliament, the new rules extend the so-called “travel rule”, already in place in traditional finance, to include transfers in crypto assets. This rule requires that information about the source of the asset and its recipient must travel with the transaction and be kept on both sides of the transfer. Crypto Assets Service Providers (CASPs) are required to share this information with relevant authorities when conducting a money laundering and terrorist financing investigation.

With regard to the protection of personal data, including a name and address required by the travel policy, the traders agreed that such data should not be sent if there is no guarantee that privacy will be preserved by the receiving end.

Fight money laundering and terrorist financing

Before making the crypto-assets available to the recipients, the providers must verify that the source of the asset is not subject to any restrictive measures or sanctions and that there is no risk of money laundering or terrorist financing.

The negotiators agreed that the establishment of a public register of non-compliant and unregulated CASPs, with which EU CASPs are not allowed to trade, will be foreseen in the rules of the Crypto Asset Markets (MiCA).

Rules for non-hosted wallets

The rules will also cover transactions from so-called non-hosted wallets (a crypto asset wallet address that is in the custody of a private user) when interacting with hosted wallets managed by CASPs. If a customer sends or receives more than 1000 euros to or from their own non-hosted wallet, CASP must verify that the non-hosted wallet is actually owned or controlled by that customer.

However, the rules do not apply to person-to-person transfers made without a provider, such as B. Bitcoin trading platforms or between providers acting on their own behalf.

MEP Assita Kanko said: “Crypto-assets have stayed under the radar of our law enforcement agencies for too long. Terrorists used crypto to raise money to access child pornography and criminals used it to launder their earnings. This has really hurt people’s lives and raised doubts about the crypto sector. Today we took a big step to address these issues. Crypto assets will be much harder to abuse and innocent traders and investors will be better protected. The improved travel rule will make this world safer.”

Regulation makes illegal activities more difficult, but cannot prevent them

Barbara Scheben and Alexander Geschonneck of KPMG make it clear: “Despite a wide range of regulatory measures, blockchain technology will continue to offer opportunities to conduct transactions with cryptocurrencies outside of government oversight”. The regulatory framework for handling crypto-assets is becoming increasingly solid, creating more legal certainty. But legally safe does not mean risk-free. Safeguards would be needed to prevent cryptocurrencies from being misused by criminals.

Unfortunately, it turns out that ransomware attacks that demand a ransom in cryptocurrency remain attractive to cybercriminals. As you know, online criminals are quickly looking for new or different ways to achieve their goals, and it is no different with payments that they want to extort in crypto-assets. Nevertheless, it is right and important to make it as difficult as possible for crime by trying to ensure more transparency and control.

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