EU Regulatory Changes: Predictions by Delphine Forma

Recently, 21 Analytics had the pleasure of discussing the future of regulatory changes in the EU with Delphine Forma. Our big question to the crypto compliance guru was what changes she predicted for the future of the EU’s Travel Rule and regulations.

The interview below highlights Delphine’s predictions for “what next” for EU regulations after the implementation of the TFR. 

In this interview, Delphine expresses her views, not those of Solidus Labs.   

Regulatory Changes for the EU’s Travel Rule

According to Delphine, significant regulatory changes for the EU's Travel Rule (TFR) may not be imminent, but certain developments could shape its evolution in the coming years.

Before diving into her predictions, Delphine clarified the importance of noting that MiCA and the TFR are two separate Regulations and should not be confused: 

The Market in Crypto-Assets Regulation (MiCA) set up uniform EU market rules for crypto assets, while the Transfer of Funds Regulation (TFR) details the rules on the information on payers and payees, accompanying transfers of funds, including crypto, for the purposes of prevention, detection and reporting of money laundering and terrorist financing.

Another important point to note here is that AML is governed by the AMLDs and local regulations, and from 2027 will be the new EU AML regulations.

21 Analytics: What potential changes can we expect for the TFR?

Delphine: Last year, the FATF pushed to revise Recommendation 16, potentially requiring additional data on beneficiaries. While immediate changes to the TFR are unlikely, if adopted, this could lead to updates in the EU’s TFR data requirements to align with these international standards.

We may also see more guidance being published by the regulators on the different challenges faced by the industry, as well as, hopefully, a publication of best practices by crypto businesses and trade associations.

21 Analytics: Will there be a MiCA 2? 

Delphine: The regulatory spotlight in the EU is currently on addressing grey areas and ensuring effective enforcement of existing frameworks like MiCA and the TFR. Introducing a "MiCA 2" to address gaps in MiCA seems unlikely in the near future but is not excluded. However, ongoing regulatory attention could refine certain provisions as the market and technologies evolve.

21 Analytics: What about DeFi’s impact on regulations?

Delphine: A recent report by ESMA and the EBA highlights that DeFi remains a niche market, representing just 4% of the global crypto market value. According to the report, EU adoption of DeFi is above the global average but still lags behind markets like the US and South Korea. This limited adoption suggests that DeFi is unlikely to drive immediate regulatory overhauls, though it may influence the regulatory agenda over time.

“I think the next focus of the regulator would be on decentralised finance, lending and borrowing, staking, and all those types of activities […].”

Delphine’s Parting Thoughts on Regulatory Updates

While significant changes to the TFR may not happen in the short term, FATF-driven updates and enforcement priorities could lead to refinements. As of now, and because MiCA and the TFR are relatively new frameworks, regulators may focus on implementing and enforcing existing rules rather than introducing new frameworks. Enforcement and Implementation already come with many challenges, and MiCA and the TFR are not the only new frameworks to implement (AI Digital Act, DORA, etc…).

The EU’s Travel Rule is far from perfect, and several loopholes and ambiguities still need to be addressed to improve its effectiveness. 

The TFR’s Loopholes and Ambiguities 

Delphine touched on some of the loopholes and ambiguities within the TFR. She provided her thoughts on the issues that CASPs are experiencing, along with areas where additional guidance would be beneficial. 

21 Analytics: Is there still an issue with counterparty CASP identification?

Delphine: Guidance is still needed on identifying counterparty CASPs and the required level of due diligence. Questions remain around the practical implementation of this, especially in cross-border scenarios or when counterparties operate in jurisdictions with limited or no Travel Rule compliance. Something else to mention regarding the identification of counterparties is the ability to identify an entity within a group of entities. 

Guidance should also be given on the level of due diligence expected, as this may be rather challenging, especially for CASPs transacting with multiple counterparties across the globe. There is here also an opportunity for the industry to come together and define standards, such as the ones defined within GDF. 

21 Analytics: What about handling non-compliance concerns?

Delphine: More clarity needs to be provided about what should be done if the counterparty CASP is non-compliant. Key concerns include:

• When do you sever the relationship with a counterparty not providing the appropriate Travel Rule documentation? 

• It is hard to stop crypto deposits, so how can you ensure full compliance? One option is to use an intermediary wallet and credit funds to the customer account only when all checks have been performed.

• Can funds be sent back to the originator? If yes, to whom? Can you actually send it back without being compliant, especially when data is not provided?

• How do you manage funds that cannot be returned? 

These situations create operational uncertainty and risk, which require more explicit regulatory guidance.

21 Analytics: Have you seen queries about interactions with entities not subject to the TFR?

Delphine: Absolutely. Many CASPs are unsure how to interact with entities not subject to the Travel Rule, such as decentralised platforms, self-hosted wallets, or entities in jurisdictions without Travel Rule implementation. This grey area remains a challenge for enforcement and compliance. A best practice is to use a risk-based approach, especially by using blockchain analytics and transaction monitoring tools to mitigate risks. 

21 Analytics: What role does the industry play regarding best practices?

Delphine: Regulations should remain principle-based, leaving it to the industry to set up standards and best practices. Engagement with regulators, collaboration, and innovation within the private sector will be essential to address practical issues and implement the Travel Rule effectively.

21 Analytics: Is the Travel Rule Enough?

Delphine: While the Travel Rule is an important tool for combating financial crime, it is not a comprehensive solution. But you know my view, which is public knowledge…

My view: The Travel Rule wasn’t entirely a necessity. Indeed, if the goal is to fight financial crime, using blockchain analytics tools and transaction monitoring already gives you all the insights on exposure to illicit activities. 

I believe it primarily serves law enforcement agencies to be able to prosecute individuals – even though there is always a point of contact with a centralised entity and thus a way to obtain the required info – rather than the industry, and its effectiveness in fighting financial crime is still questionable. 

It is a clear example of applying old rules to new technologies without considering the impact and already existing risk mitigants. Full traceability is not possible in the TradFi world as it is when digital assets are traded on blockchains.

When it comes to what is next and that said, the next step is for the DeFi sector to proactively adopt best practices and implement controls to ensure they are not exploited for illicit purposes. DeFi’s decentralised nature makes it vulnerable to misuse, but this also presents an opportunity for the sector to innovate and limit criminals' options.

We now have a way to deter bad actors—why not make the most of it by continuously refining processes and risk controls? This is not the end of the road but a starting point to ensure that both centralised and decentralised financial systems are resilient against misuse.

If you enjoyed Delphine’s thoughts, join the Crypto Compliance and Legal TG group. Alternatively, contact us for more information on the EU’s Travel Rule. 

About Delphine Forma 

Delphine is an experienced policy officer who has worked across different countries and industries, including large banks in the UK, and blockchain/crypto businesses such as BitMEX. 

Holding a diploma from Sciences Po, and two master’s degrees specialised in European Criminal Business Law, and Frauds and Money Laundering Prevention, Delphine currently works as a Policy Lead at Solidus Labs.

She is also the founder of the Crypto Compliance and Legal TG group with more than 1500 members (constantly growing), and has been advising startups on their regulatory strategy in Switzerland and Europe. Moreover, she is an Ambassador for the Association of Women in Crypto and GBBC, and the podcast host of MiCA Masters. 

Delphine is passionate about regulatory affairs and strategy, policy, virtual assets, technology and how blockchain technology as well as AI can change (is changing) the world we are living in.