A possibly transformative digital assets regulation draft is threatening to shake up the European crypto landscape.

On Feb. 9, two major factions of the European Parliament submitted a policy blueprint that aims to apply existing regulations designed to counter money laundering and terrorism financing to all crypto transactions. The draft was spearheaded by Belgian parliament member (MEP) Assita Kanko (European Conservatives and Reformists) and Spanish MEP Ernest Urtasun (Greens–European Free Alliance).

The current version of the "travel rule" obliges banks and payment companies to store information that "travels" between payers and recipients and make it available to authorities for several years. The policy only triggers when a transaction exceeds the threshold of 1,000 euros.

Some have pointed out the regulation blueprint resembles the official advice of the Financial Action Task Force (FATF) – an intergovernmental organization founded by the G7 group of nations to combat money laundering and terrorism financing – a little bit too closely.

“Is the FATF supposed to have such a strong influence on how European policy is shaped?" asked Thomas Spaas, a Belgian attorney specializing in crypto regulation. “With such legislation, crypto exchanges will have to do even more of what they were already doing anyway: keeping records of their customers. This means yet more paperwork for crypto companies and another obstacle for new entrepreneurs to overcome.”

The regulation was introduced independently of FATF.

Kanko and Urtasun propose to drop the threshold for crypto transactions, which would effectively force exchanges and wallet providers to record the "travel information" for every single transfer. European authorities would obtain the name of the sender and the recipient, the sender's home address, passport number and the wallet address of both the sender and recipient.

Kanko and Urtasun argue in their draft that small transactions with cryptocurrencies are often used to fund terrorism or launder money. Such a loophole would enable the use of digital assets to fund and hide criminal activities, since illicit capital can anonymously move without any geographical limitations with a good chance of remaining undetected, the MEPs explain. This would justify the need to remove the 1,000 euro threshold for crypto transactions.

The blueprint also mentions the curation of a white list for crypto exchanges that successfully implemented satisfactory KYC procedures for users. They could possibly be exempted from having to record every single transaction. Kanko specifically mentioned Binance as a crypto exchange that could possibly acquire a spot on the white list.

The regulation draft sparked debate within the European crypto industry. Key players in Europe are often receptive to and relaxed about regulations being drafted in Brussels. However, the hefty expansion of the "travel rule" has business owners worried about the possible risk of stifling the competitiveness of the region.

“A complete implementation of the ‘travel rule’ will prove to be difficult, considering not every technology allows this particular information to be stored and transferred. It would be much easier to set up a global register of identified addresses, a procedure also used in banking,” said Marc Toledo, managing director of Belgian crypto exchange Bit4You and director of the Blockchain Association of Belgium.

According to Toledo, the EU shouldn’t identify crypto as an enemy in their fight to combat financial crime.

“The enemy is and will always be anonymity and badly implemented KYC procedures. Regulators will have to coordinate closely with crypto exchanges to pinpoint solutions that increase security without hindering the future and competitiveness of the European crypto industry," he said.

Olivier van Duijn, CEO of the Dutch crypto exchange LiteBit, also pointed to possible risks of weakening Europe’s crypto industry.

“It’s always great to take further measures against money laundering and terrorist financing, but it is unfortunate that a ‘traditional’ approach to managing risks in a new sector is being adopted. This policy will be implemented in certain countries or regions sooner than within others. That could create an uneven playing field," van Duijn said.