New FATF standards a double-edged sword for crypto industry
Proponents of cryptocurrency have long called for the integration of virtual currency into the mainstream global financial system. “Don’t shun us; regulate us,” has been the message from these crypto evangelists, and with good reason. Crypto cannot expect to get a firm foothold in global finance if most regulators ban it.
That said, sometimes we need to be careful what we wish for, because we just might get it. In late June, the Financial Action Task Force (FATF), an intergovernmental organization that fights financial crime — particularly money laundering and terrorism financing — published new standards that require virtual-currency exchanges to share customer data for all transactions between virtual asset service providers (known in FATF parlance by the acronym VASP). The FATF has given its 37 member countries one year to adopt the guidelines. In June 2020, it will review their progress.
Known as the “Travel Rule,” this requirement is well established in the international banking system. But it’s not as easy as 1–2–3 when applied to blockchain technology, in which transactions are usually anonymous or pseudonymous. It could be tough indeed to implement the travel rule for crypto transactions while not necessarily beneficial for law-enforcement purposes. Yet at this point, the crypto industry needs to accept that the FATF has made its decision. To do otherwise risks endangering the industry’s future development.
On the one hand, the fact that FATF has issued these standards for virtual currency shows that the industry is maturing and increasingly viewed in the global financial community as something that needs to be regulated rather than stamped out. FATF is a heavyweight among intergovernmental regulatory bodies in the financial industry, with a membership that includes the world’s 20 largest economies.
During the recent meeting of the G20 in Osaka, its leaders issued a statement affirming their support for the new FATF guidelines for virtual currency. “We reaffirm our commitment to applying the recently amended FATF Standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism,” they said.
Indeed, criminals have unfortunately exploited certain elements of cryptocurrency to engage in destructive financial crime. While such malfeasance may be less common than some media reports make it out to be, the crypto industry’s reputation has still suffered. Ask the average person about crypto and you won’t be surprised to find that the person doesn’t have a great impression.
Adopting FATF’s new standards should help legitimize crypto and blockchain in general with the public as well as improve the security of transactions.
“By adopting the standards and guidelines agreed to this week, the FATF will make sure that virtual asset service providers do not operate in the dark shadows” and are able to “stay one step ahead of rogue regimes and sympathizers of illicit causes,” U.S. Treasury Secretary Steven Mnuchin said at the FATF plenary session in June.
There is also some reason for optimism about the crypto industry’s ability to safeguard customer privacy under these new guidelines. In early July, blockchain security firm CipherTrace, decentralized network Shyft, and hardware wallet provider (and Formosa Financial partner) CoolBit X said they would launch a solution to help crypto firms be compliant with the tough new FATF rules while keeping user data private.
The two companies plan to develop a compliance solution “to make KYC and AML faster, more efficient and open, all while maintaining a high level of privacy and only revealing identity information when compelled to do so by legal authorities,” according to a statement published by CipherTrace and Shyft.
As the compliance bar for the industry is raised higher and higher, firms like Formosa Financial and CEZEX are constantly monitoring and evaluating the latest developments. By being licensed and regulated entities under the recently published digital asset issuance and exchange rules of the Cagayan Economic Zone Authority it is incumbent upon companies to see the global direction of regulations while maintaining regular contact with their local regulator to ensure that standards aren’t just being promoted but actively reached as well.
Published at Tue, 09 Jul 2019 03:52:24 +0000
