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- IDnow joins a consortium to make Crypto Asset Service Providers and self-hosted wallets adhere to EU’s Anti-Money-Laundering and Transfer of Funds regulations.
- The consortium proposes a system using soul-bound tokens for identity verification, addressing both regulatory compliance and privacy concerns.
In a groundbreaking move, IDnow, a prominent European identity verification platform provider, has announced its collaboration with a consortium of industry leaders aimed at aligning Crypto Asset Service Providers (CASPs) and self-hosted wallets with new European Union regulations. This consortium, which includes the IOTA Foundation, walt.id, SPYCE.5, and Bloom Labs, is set to navigate the complex landscape of EU’s Anti-Money-Laundering (AML) Regulation and the Transfer of Funds Regulation (TFR).
Regulatory Challenges and Innovative Solutions:
The TFR regulation in the EU mandates that all cryptocurrency transactions carry identifying data of both the sender and receiver. This rule requires CASPs to implement procedures akin to traditional financial institutions, particularly in the realm of user identification when opening accounts and registering wallets.
However, a significant hurdle for CASPs in adhering to these new rules is ensuring compliance with the General Data Protection Regulation (GDPR), which governs the storage of personal identifiable information (PII). Blockchain technology, by its very nature, poses challenges in this regard due to the immutable and transparent nature of Distributed Ledger Technologies (DLT).
Balancing Compliance and Privacy:
To address these complexities, the consortium proposes an innovative solution: the creation of soul-bound tokens (SBTs) for identity verification. These tokens, grounded in the concept of tokenizing an identification process without revealing PII, provide a novel way for CASPs to verify user identities. This system allows for web3 native interactions while maintaining the necessary level of trust and transparency in crypto asset transactions.
Within this framework, the IOTA Foundation is set to offer the necessary network infrastructure by implementing the solution on an Ethereum Virtual Machine (EVM)-compatible IOTA Smart Contract Chain. Meanwhile, walt.id is tasked with developing a trusted witness service for creating and verifying these SBTs. IDnow will contribute its expertise in identity verification, essential for user onboarding. Bloom Labs will enhance the system with its wallet capabilities, allowing users to store and prove ownership of SBTs. Lastly, SPYCE.5’s role will be integral in ensuring seamless interchain communication and transaction validation.
Expert Opinions on the Future of Crypto Compliance:
Rayissa Armata, Director Global Regulatory and Government Affairs at IDnow, emphasized the consortium’s commitment to addressing the technological and regulatory challenges in the crypto sector, especially concerning AML, KYC, and TFR. Dominik Schiener of the IOTA Foundation highlighted the need for innovative solutions that balance regulatory requirements with ease of use for businesses and consumers. These sentiments were echoed by Dominik Beron of walt.id and Nicole O’Brien of Bloom Labs, underlining the project’s significance in regulatory compliance and user experience in the crypto and DeFi sectors. Holger Köther of SPYCE.5 also underscored the consortium’s commitment to maintaining integrity and efficiency in the crypto space while navigating the complexities of EU regulations.
In conclusion, this consortium’s efforts represent a significant step towards a regulatory-compliant future for crypto assets in the EU, ensuring that the crypto industry can thrive within the bounds of the law while preserving user privacy and security.
