And what happens when someone sends coins from his own unhosted wallet to his KYC`d exchange account in order to exchange it to fiat? Has to prove that his won wallet is his own, or what?
Brian Armstrong - Coinbase CEO said that "Moreover, any time you receive 1,000 euros or more in crypto from a self-hosted wallet, Coinbase will be required to report you to the authorities. This applies even if there is no indication of suspicious activity."
1. no you dont. you wanting a deposit into the account deposit address is you having those assigned to you. they do not need you to prove every deposit is yours. you wanting have a deposit into your account deposit address is you already linking yourself to that deposit.
in short nothing else is needed
For transfers of funds or for transfers of crypto-assets where verification is deemed to have taken place,
payment service providers and crypto-asset service providers should not be required to verify information on the payer or the payee accompanying each transfer of funds, or on the originator and the beneficiary accompanying each transfer of crypto-assets, provided that the obligations laid down in Directive (EU) 2015/849 are met.
2. they have to keep logs of all deposits and trades/swaps within their service and if the authorities question it then they have to provide that info to the authorities
basically if the authorities request the info
EG
As regards transfers of crypto-assets, the crypto-asset service provider of the beneficiary should implement effective procedures to detect whether the information on the originator or the beneficiary is missing or incomplete. These procedures should include, where appropriate, monitoring after or during the transfers, in order to detect whether the required information on the originator or the beneficiary is missing or incomplete. With a view to ensuring the respect of the right to privacy and the protection of
personal data, personal information should not be recorded on the distributed ledger and should not be attached directly to the transfer of crypto-assets itself. It should however be required that the
information is submitted immediately and securely, and made available upon request to appropriate authorities
this one part alone both tells people that the EU are not requesting that blockchains should make users info public on the blockchain (a silly idea certain people propagandised months ago)
ill also quote this that clarifies they do not want the crypto software/ wallet software to send the info
2. Transfers from/to un-hosted wallets
Secondly, it should be clarified that this Regulation applies also to transfers from or to crypto-asset wallets based on a software or hardware not hosted by a third party, known as ‘unhosted wallets’, provided that a crypto-asset service provider or another obliged entity is involved. In such circumstances, however, there should be no transmission of information to the unhosted wallet. Information should be obtained by the crypto-asset service provider directly from its customer and should be held and made available to competent authorities.
and also states the "made available" in many exerts .. ON REQUEST
there are other things. like
as well as effective procedures to detect suspicious transfers based on the source or destination of the crypto-assets involved, in particular any link with criminal activities and darknet marketplaces, or any usage of mixers or tumblers or other anonymising services, in order to allow them to decide whether to
execute, reject or suspend that transfer and to determine the appropriate follow-up action to take
the 'determine the appropriate follow-up action to take' references things like if the service should raise the flag to a potential need to report it to authorities.
in short its not a defacto 'report everything'
in short. they do not blanket ban users for using a mixer or freeze the account or refuse withdrawals or report them automatically/every instance. the service provider has to assess things case by case. and with other EU directives they should only really refuse withdrawals/access if done via a court order to seize funds.