Compliance with Regulation (EU) 2023/1113
Introduction
Regulation (EU) 2023/1113 introduces enhanced anti-money laundering (AML) and counter-terrorist financing (CTF) requirements for crypto-asset service providers (CASPs) and financial institutions operating within the European Union. The regulation aims to improve traceability of transfers of funds and crypto-assets, reduce financial crime risks, and ensure harmonization across EU jurisdictions.
This article outlines the key obligations under Regulation (EU) 2023/1113 and provides guidance on how CASPs and financial institutions can achieve full compliance.
Who Must Comply with Regulation (EU) 2023/1113?
Regulation (EU) 2023/1113 applies to:
✔ Crypto-asset service providers (CASPs)
✔ Payment service providers (PSPs)
✔ Financial institutions processing transfers of funds
✔ Virtual asset service providers (VASPs)
✔ Custodial wallet providers
✔ Crypto exchanges facilitating fiat-to-crypto or crypto-to-crypto transfers
✔ Intermediaries handling cross-border financial transactions
All in-scope entities must implement risk-based AML controls, conduct customer due diligence (CDD), and ensure compliance with EU regulatory requirements.
Key Compliance Requirements Under Regulation (EU) 2023/1113
1. Customer Due Diligence (CDD) & Know Your Customer (KYC) Requirements
☑ Verify the identity of the originator and beneficiary before executing transactions.
☑ Collect and store: Name, account number, and Distributed Ledger Technology (DLT) address.
☑ Apply enhanced due diligence (EDD) for high-risk customers and large transactions.
☑ Monitor business relationships for suspicious transaction patterns.
2. Transaction Monitoring and Risk-Based Approach
☑ Implement automated transaction monitoring systems to detect unusual activities.
☑ Conduct real-time screening for transactions involving sanctioned or high-risk jurisdictions.
☑ Reject or suspend transfers with missing or incomplete information.
☑ Utilize Blockchain analytics tools for improved transaction traceability.
3. Transfers Involving Self-Hosted Wallets
☑ Verify ownership of self-hosted wallets for transfers exceeding €1,000.
☑ Assess whether self-hosted addresses are associated with high-risk activities.
☑ Implement enhanced security measures for wallet verification and fraud detection.
4. Record Retention and Data Protection
☑ Maintain transaction data records for a minimum of five years.
☑ Ensure compliance with GDPR (Regulation (EU) 2016/679) when processing personal data.
☑ Prohibit the use of transaction data for commercial purposes.
5. Reporting Obligations & Regulatory Cooperation
☑ Report suspicious transactions to the Financial Intelligence Unit (FIU).
☑ Ensure full cooperation with competent authorities in AML/CFT investigations.
☑ Respond promptly to compliance-related requests from financial regulators.
Penalties for Non-Compliance
Failure to comply with Regulation (EU) 2023/1113 may result in:
🚨 Severe administrative sanctions and monetary penalties
🚨 Increased regulatory scrutiny and risk of license revocation
🚨 Legal action against non-compliant entities
🚨 Reputational damage and loss of customer trust
To avoid these risks, crypto-asset service providers and financial institutions must implement robust AML controls and ensure compliance with EU regulatory requirements.
How to Ensure Full Compliance?
To meet Regulation (EU) 2023/1113 obligations, companies should:
✅ Deploy AI-driven AML compliance solutions for real-time monitoring.
✅ Establish a dedicated AML compliance officer responsible for regulatory adherence.
✅ Conduct regular employee training on AML/CTF risks and best practices.
✅ Perform internal audits and compliance reviews to identify gaps.
✅ Stay updated on regulatory developments and new EU directives.
By proactively adapting to regulatory requirements, businesses can enhance compliance efficiency and reduce financial crime risks.
Conclusion
Regulation (EU) 2023/1113 establishes clear AML/CFT obligations for crypto-asset service providers and financial institutions. Full compliance requires robust transaction monitoring, KYC/AML verification, and cooperation with authorities.
Need expert assistance? Contact us for tailored compliance solutions and ensure your business stays fully compliant with EU financial regulations.