Transfer of Funds Regulation

In recent years, the regulation of cryptocurrencies like Bitcoin has become increasingly important. One key development is the Transfer of Funds Regulation (ToFR), a new EU framework that comes into effect on December 30, 2024, impacting all crypto transfers within the EU. This regulation aims to increase transparency in crypto transfers and prevent their misuse for illegal activities such as money laundering and terrorist financing. 

What is the Transfer of Funds Regulation (ToFR)?  

The Transfer of Funds Regulation (ToFR), also referred to as the Funds Transfer Regulation or Travel Rule, is an EU initiative designed to enhance the traceability of both fiat and crypto transactions as part of its digital finance strategy. Taking effect on December 30, 2024, the regulation aims to combat money laundering and terrorist financing by requiring crypto service providers to collect, transmit, and store information about senders and recipients of crypto transfers, including those involving Bitcoin. 

By improving traceability, ToFR enables authorities to better detect, prevent, and investigate suspicious transactions. 

Self-hosted wallet: These are wallets where you, as the owner, have sole control over the private keys. They are also referred to as “private”, “self-hosted”, or “unhosted” wallets.    

CASP (Crypto-Asset Service Providers): These are companies or legal entities that provide crypto asset-related services. Note: While the EU officially calls them CASPs, they’re often referred to as VASPs (Virtual Asset Service Providers) in other regions. 

What will crypto service providers have to do under the ToFR?  

Crypto service providers in Europe, including BSDEX, will be legally required to implement the following measures:  

1. Identification of sender and recipient: Providers must verify the identity of individuals transferring crypto, including details like names, addresses, or dates of birth.  

2. Data storage: Collected data must be securely stored and retained for a specified period. If suspicious activity is detected, authorities can access transaction records.  

3. Reporting obligations: Platforms must report unusual or suspicious transactions. 

4. Compliance and monitoring: Providers must establish appropriate risk management and compliance programs to ensure adherence to the regulations. 

What changes for BSDEX users?  

Once the ToFR takes effect, BSDEX and other EU crypto providers will introduce several adjustments to meet the new requirements:   

• Proof-of-Ownership: For deposits and withdrawals exceeding €1,000 involving self-hosted wallets, you must verify ownership through a "proof-of-ownership" process. This verification is required once per year and will be conducted digitally. 

• Transfers to other CASPs: For transfers to another CASP, you must inform us, as BSDEX will need to transmit additional personal data (e.g., your first and last name, address, or birthdate) to the receiving CASP. To ensure a smooth transfer, these details must be complete and accurate. We recommend checking your BSDEX profile under Settings > Profile to confirm your details are up to date. 

• Data accuracy: Regularly check your profile to ensure that your personal data is correct and reduce potential transaction delays. 

What information must I provide under the ToFR?  

Under the ToFR, the following information will be mandatory:  For deposits:  

• Proof-of-ownership for self-hosted wallets if the transfer value exceeds €1,000 

• Sender information if the recipient CASP has incomplete data 

For withdrawals:   

1. Cryptocurrency type and amount 

2. Blockchain destination address 

3. Confirmation that you are the beneficial owner of the recipient wallet 

4. Indication of whether the transfer involves a self-hosted wallet or another CASP 

5. Proof-of-ownership for transfers exceeding €1,000. 

What does proof-of-ownership mean?  

Proof-of-ownership verifies that a self-hosted wallet genuinely belongs to you for transfers exceeding €1,000. This requirement applies to both crypto deposits and withdrawals, as well as transfers below €1,000 that collectively exceed this threshold within a short time frame.   

How does proof-of-ownership work at BSDEX? 

To prove ownership of your private wallet, you’ll need to perform a microtransaction, also known as the Satoshi test. This involves transferring a predefined amount of crypto assets from your self-hosted wallet to a target wallet address specified by BSDEX. The amounts are small and fall within a predefined range, randomly selected by BSDEX. For example, Bitcoin transfers typically range between 550 and 1550 Satoshi. You can find a full list of Satoshi test ranges for each cryptocurrency here. 

Important information: To ensure the Satoshi test runs smoothly, make sure you maintain a sufficient balance of crypto assets in your private wallet for deposits and withdrawals, as specified in the Satoshi test ranges.   

The test is usually performed using the cryptocurrency you wish to transfer. For ERC tokens, however, the Satoshi test is always performed in Ethereum (ETH). If you make a deposit or withdrawal request exceeding 100% of your crypto assets, the microtransaction cannot be performed. In such cases, you'll need to top up your self-hosted wallet via another source, such as an additional self-hosted wallet, to proceed with the Satoshi test. 

Once the crypto assets have been successfully transferred, the transaction serves as proof of ownership of your private wallet. The transferred assets will immediately appear in your BSDEX portfolio, and the amount required for the Satoshi test will be credited to your BSDEX account.   

Please note: With the introduction of the Transfer of Funds Regulation, transfers requiring proof of ownership are initially only possible via the BSDEX web interface. This functionality will be extended to the BSDEX mobile app soon. 

Click on the video now to familiarize yourself with the Satoshi test at BSDEX for deposits.   

(The Satoshi test follows the same procedure for withdrawals) 

 Please note: 

• Any blockchain fees incurred during the microtransaction are your responsibility. 

•  The deposit and withdrawal process, including the Satoshi test, may take longer than usual after the introduction of the ToFR, as additional manual checks may sometimes be required. 

What happens if BSDEX does not receive data from other crypto service providers? 

If the required data is not provided by the other CASP (crypto service provider), BSDEX will contact them to request the missing information. If the information is not received within the required timeframe, we will unfortunately be unable to process the transaction due to regulatory reasons.  

Frequently asked questions about the Transfer of Funds Regulation  

• Which transactions are affected? All transfers to and from crypto service providers and self-hosted wallets are affected if the value exceeds €1,000.  

• Will my data be shared? Your data will only be shared in accordance with legal requirements to ensure compliance.  

• Are there fees for proof of ownership? Yes, blockchain fees for the microtransaction are your responsibility. However, the amount of the microtransaction will be credited to your BSDEX account, minus these fees.  
   

 Ready for the changes? 

Make sure your BSDEX profile is up to date and prepare for the new requirements to keep your crypto transfers running smoothly from December 30, 2024.    Do you have further questions? 

Contact us or visit our FAQ for detailed instructions and support.