Read more: FATF Recommendations

The Financial Action Task Force (FATF) Recommendations establish a global framework for combating money laundering (AML), terrorist financing (CTF), and the proliferation of weapons of mass destruction. The FATF Standards comprise the Recommendations themselves and their Interpretive Notes, together with the applicable definitions in the Glossary. These recommendations are designed to be adaptable, allowing countries to implement them according to their unique legal, financial, and operational structures. While not legally binding, they set an international standard that governments strive to uphold through domestic laws and enforcement mechanisms.

Although FATF itself does not enforce regulations, its guidelines shape national policies and influence how authorities investigate financial crimes, including tracking illicit funds related to drug trafficking, human trafficking, and terrorism. Countries adhering to these recommendations undergo rigorous assessments through Mutual Evaluation processes conducted by FATF, the International Monetary Fund (IMF), and the World Bank.

For the cryptocurrency industry, FATF’s Recommendations have significantly influenced regulations. The Interpretive Note to Recommendation 15 (R15) clarified the application of FATF rules to Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs), subjecting them to the same AML/CTF obligations as traditional financial institutions. Additionally, Recommendation 16 (R16) extended the Travel Rule to cover cryptocurrency transactions, requiring VASPs to collect and share customer information for transactions above a certain threshold. Since 2020, these measures have profoundly impacted how exchanges, wallet providers, and other crypto businesses operate.

Why is this important for crypto wallet owners?

FATF Recommendations shape the regulatory environment for cryptocurrency transactions. Understanding these rules helps wallet owners navigate compliance requirements, avoid restricted services, and ensure their transactions remain secure and legally compliant.

The Crypto Travel Rule is a global regulatory requirement that mandates Virtual Asset Service Providers (VASPs)—including crypto exchanges, custodial services, and financial institutions—to collect and share information on the sender and receiver of cryptocurrency transactions exceeding a specific threshold. This rule, first introduced by the Financial Action Task Force (FATF) in 2019, is part of Recommendation 16 (R16) of FATF’s 40 Recommendations and is designed to combat money laundering (AML), terrorist financing (CTF), and other illicit activities.

How Does the Crypto Travel Rule Work?
It requires VASPs to share transaction details, including sender and receiver information, above a specified threshold. The recommended threshold for virtual asset transactions is USD 1,000 (or EUR 1,000). When a transaction meets or exceeds this amount, the following details must be collected and transmitted:

• Originator (Sender) Information:
  1. Name
  2. Account number (or unique transaction reference)
  3. Address, national identity number, customer identification number, or date and place of birth
• Beneficiary (Receiver) Information:
  1. Name
  2. Account number (or unique transaction reference)

These requirements apply to VASPs and financial institutions involved in virtual asset transactions. Failure to comply may result in regulatory penalties, transaction rejections, or additional scrutiny.

Why Is This Important for Crypto Wallet Owners?

The Crypto Travel Rule affects both businesses and individual crypto users. Many exchanges and service providers now require users to verify their identity before conducting transactions above the threshold. This rule directly impacts how wallet owners interact with regulated platforms, making it essential to understand these requirements to avoid service disruptions, transaction delays, or potential account restrictions.

Read more: Virtual Currency. Key Definitions and Potential AML/CTF Risks

To combat financial crime, governments and regulatory bodies worldwide have implemented Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures targeting cryptocurrency transactions. These frameworks are designed to prevent criminals from using virtual assets to launder illicit funds or finance terrorism.

AML Regulations for Crypto Transactions
AML regulations aim to prevent criminals from converting unlawfully obtained cryptocurrencies into cash by enforcing strict compliance measures. The Financial Action Task Force (FATF) plays a key role in setting global AML standards, which many jurisdictions—including the United States (FinCEN), the European Commission, and other regulatory bodies—have integrated into their legal frameworks.

 VASPs are required to:

• Conduct Know Your Customer (KYC) checks to verify user identities.
• Monitor transactions for suspicious activity and report findings to regulatory agencies.
• Implement the Crypto Travel Rule (Recommendation 16) to share sender and receiver information for transactions above a set threshold.

Know Your Customer (KYC) Compliance
KYC programs are essential for identifying and assessing customer risk levels. They typically include:

1. Customer Identification (CIP): Verifying users through independent data sources.
2. Customer Due Diligence (CDD): Assessing risk by reviewing customer backgrounds, transaction histories, and business relationships.
3. Continuous Monitoring: Detecting suspicious behavior and filing Suspicious Activity Reports (SARs) with FinCEN or relevant authorities.

CTF and Its Role in Crypto Regulations
Terrorist financing involves raising, moving, and using funds to support terrorist organizations or activities. To combat this, AML and CTF frameworks work together to monitor financial flows and disrupt illicit networks. In the crypto space, CTF measures ensure that criminals cannot bypass AML regulations by requiring VASPs to:

• Collect and share transaction data under the Crypto Travel Rule.
• Monitor transactions for links to sanctioned individuals or high-risk entities.
• Use blockchain analysis tools to trace illicit activity and report suspicious transactions.

 Why Is This Important for Crypto Wallet Owners?
AML and CTF regulations directly impact crypto users, as exchanges and financial services require identity verification, transaction monitoring, and compliance with the Travel Rule. Understanding these regulations helps wallet owners navigate restrictions, avoid compliance issues, and ensure seamless access to crypto services without unnecessary delays or rejections.

Read more: full text of the Regulation

The goal of the TFR is to enhance the transparency of crypto transactions, making it easier for authorities to track and investigate suspicious activities. It applies to both fiat and cryptocurrency transfers, ensuring that crypto service providers comply with the same regulatory standards as traditional financial institutions.

 What are the key requirements of the Transfer of Funds Regulation?
The TFR applies to all crypto transactions, including those between CASPs and between a CASP and a self-hosted (unhosted) wallet.

Crypto service providers must collect and exchange the following information during transactions. For the Originator (Sender):

• Full name
• Distributed ledger address or crypto-asset account number
• Physical address (including country)
• Official personal document number or customer identification number
• Date and place of birth
• Legal Entity Identifier (LEI) or an equivalent official identifier (if available)

For the Beneficiary (Receiver):

• Full name
• Crypto-asset account number

Unlike previous drafts, the TFR applies to all transactions, regardless of the amount. If a CASP facilitates a transaction of €1,000 or more with a self-hosted wallet, it must verify that the customer owns and controls that wallet. Even smaller transactions that collectively exceed €1,000 within a short period are subject to this requirement.

Regarding data storage and reporting, the TFR rules that crypto service providers must securely store collected data and retain it for a specified period. Authorities must be able to access transaction records when investigating suspicious activities. Platforms must report unusual or suspicious transactions to relevant authorities.

How does the TFR impact self-hosted (non-custodial) wallets?
The TFR primarily applies to crypto-asset service providers (such as exchanges and custodial wallet providers), but it also affects self-hosted (non-custodial) wallets. When a CASP processes a transaction of €1,000 or more to or from a self-hosted wallet, it must:

• Collect proof that the self-hosted wallet belongs to the customer.
• Conduct additional due diligence checks if necessary.
• Ensure the transaction data is securely transmitted in advance or concurrently with the transaction.

Non-custodial wallets that operate independently of a CASP are not directly subject to the TFR. However, interactions with regulated platforms will require additional verification measures, affecting how users send and receive crypto from exchanges.

Why Is This Important for Crypto Wallet Owners?
For crypto wallet users, the TFR means increased oversight of crypto transactions, particularly when interacting with regulated platforms. Custodial wallet users must be prepared for enhanced identity verification, while non-custodial (self-hosted) wallet users might face additional scrutiny when transacting with VASPs. Understanding these regulations ensures compliance, reduces transaction delays, and helps prevent assets from being flagged or restricted due to missing or incomplete information.

Read more: full text of the Regulation

The Markets in Crypto-Assets Regulation (MiCA) is the European Union’s comprehensive legal framework for regulating crypto-assets, issuers, and service providers. MiCA aims to enhance consumer protection, ensure market integrity, and maintain financial stability while preventing money laundering, terrorist financing, and market abuse in the crypto sector.

MiCA provides legal clarity for crypto-assets not covered under existing EU financial laws. It harmonizes crypto regulations across EU member states, eliminating inconsistencies in national laws and ensuring a unified approach to oversight.

Who Does MiCA Apply To?
MiCA applies to crypto-asset issuers and Crypto-Asset Service Providers (CASPs), including:

• Crypto exchanges and trading platforms
• Custodial wallet providers
• Stablecoin issuers
• Crypto payment service providers

All CASPs operating within the EU must obtain a MiCA license, ensuring compliance with regulatory requirements related to transparency, security, and financial stability.

Key Regulatory Measures Under MiCA

1. Stablecoin (Asset-Referenced Token) Regulation
   • Issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs) must hold sufficient reserves to back their assets and provide clear disclosures about their collateral.
   • Stablecoins that could impact financial stability will be subject to strict oversight.
2. Transparency and Disclosure Requirements
   • Crypto-asset issuers must publish a whitepaper detailing risks, rights, and obligations before offering assets to the public.
   • Service providers must outline operational risks and compliance measures.
3. Market Abuse Prevention
   • MiCA prohibits insider trading, price manipulation, and other unfair market practices to ensure market integrity.
   • The European Securities and Markets Authority (ESMA) will supervise compliance and enforcement efforts.
4. AML and CTF Measures (Aligned with the FATF Travel Rule)
   • Crypto exchanges and CASPs must comply with the Travel Rule, ensuring sender and receiver information is collected and shared for transactions above the designated threshold.
   • CASPs must implement Know Your Customer (KYC) procedures, transaction monitoring, and suspicious activity reporting to prevent illicit financial activities.

MiCA vs. the Transfer of Funds Regulation (TFR)
While both MiCA and the Transfer of Funds Regulation (TFR) impact crypto regulation in the EU, they serve different purposes:

• MiCA establishes a legal framework for crypto, including licensing regimes, CASP definitions, and consumer protection measures.
• TFR focuses specifically on enforcing the Travel Rule within the EU, requiring crypto service providers to share transaction details to improve transparency and security.
• The TFR applies to all fund transfers (including fiat and crypto) when at least one involved party is registered in the EU.
• Unlike MiCA, the TFR applies to self-hosted wallets when a CASP is involved and requires proof of ownership for crypto transfers above €1,000.

What MiCA Does NOT Cover
MiCA does not regulate all aspects of the crypto market. It excludes:

• Self-hosted wallets from its scope (unless they interact with CASPs)
• Decentralized Finance (DeFi) and Decentralized Autonomous Organizations (DAOs)
• Crypto lending and borrowing activities
• Non-Fungible Tokens (NFTs)

Why Is MiCA Important for Crypto Wallet Owners?
MiCA directly impacts crypto users by introducing stricter requirements for exchanges and custodial wallet providers. Here’s what wallet owners should be aware of:

• More KYC Requirements: Stricter identity verification will be required for custodial wallets and crypto exchanges.
• Stablecoin Regulations: Some stablecoins may face restrictions if they do not comply with MiCA’s reserve and transparency requirements.
• Increased Transaction Security: Cross-border crypto transactions within the EU will be more standardized and secure, reducing fraud and financial crime risks.

For users of non-custodial wallets, MiCA has minimal impact, but the TFR may still affect certain transactions involving CASPs. Understanding these regulations ensures crypto users remain compliant while enjoying a safer and more transparent crypto ecosystem.