Global Cryptocurrency Ushers in Joint Regulation, FATF Will Announce Tough Measures

The FATF’s advance notice did not cause much fluctuations in the current mainstream cryptocurrency market, and Bitcoin still floated between $7,900 and $8,100.

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  • FATF is the Financial Action Task Force, an inter-governmental body established in Paris in 1989 by the Group of 7 (G7). It seeks to combat money laundering, terrorist financing  and other threats to the international financial system. The FATF has 38 members, including 36 member jurisdictions and 2 regional organisations.
  • At the G20 summit in December 2018, the G20 countries formally signed a statement that the cryptocurrency industry would be regulated according to the Financial Action Task Force (FATF) standards.In February 2019, the FATF updated its regulatory recommendations and explanations.The new regulatory enforcement measures are officially released on the 21st of this month.
  • G20 Finance Ministers and Central Bank Governors Meeting last week, it reaffirmed the attitude towards digital currencies and believed that it would not pose a threat to the stability of global financial system, but still need to be vigilant about risks, mainly involving consumer and investor protection, money laundering and terrorist financing. It can be seen that the attitude of global financial system to the digital currency is actually relatively neutral. In general, the volume of the cryptocurrency is too small and needs to be observed slowly.
  • At present, many cryptocurrency service organizations have too many loopholes and imperfections in KYC user authentication, asset compliance, and digital asset custody preservation. Compliance is always a problem. Only with compliance, more funds, users and resources will come in, and the encrypted market value will be greater.
  • The FATF’s advance notice did not cause much fluctuations in the current mainstream cryptocurrency market, and Bitcoin still floated between $7,900 and $8,100.
  • The cryptocurrency market seems to be numb to the “common” black swan event, especially the introduction of various regulatory measures. Capital is naturally eager to break through regulation, and the purpose of cryptocurrency is to circumvent those departments that have rights. The strict management of centralized exchanges will enhance the power of decentralized transactions.

On June 21, the Financial Action Task Force — a multi-government effort that develops recommendations for combating money laundering and financing of terrorism that’s followed by about 200 countries including the U.S. — will publish a note to clarify how participating nations should oversee virtual assets, FATF spokeswoman Alexandra Wijmenga-Daniel said in an email. The new rules will apply to businesses working with tokens and cryptocurrencies, such as exchanges and custodians and crypto hedge funds.

Much depends on how the rules — long governing traditional bank wire transfers — will be interpreted and applied by country-specific regulators, but they are “one of the biggest threats to crypto today,” Eric Turner, director of research at crypto researcher Messari Inc., said in an email. “Their recommendation could have a much larger impact than the SEC or any other regulator has had to date.”

The guidelines will require companies ranging from exchanges Coinbase Inc. and Kraken to asset manager Fidelity Investments to collect information about customers initiating transactions of over $1,000 or 1,000 euros, as well as details about the recipients of the funds, and to send that data to the recipient’s service provider along with each transaction.

While that may sound simple, compliance will be costly and technically difficult, said John Roth, chief compliance and ethics officer at Seattle-based exchange Bittrex. After all, wallet addresses on digital ledgers supporting cryptocurrencies are largely anonymous, so an exchange currently has no way of knowing who the recipient of the funds is.

A handful of U.S. exchanges are discussing how to set up such a system, said Mary Beth Buchanan, general counsel at San Francisco-based Kraken. The end result could be that many crypto businesses will face increased compliance costs, Buchanan said. Some non-compliant businesses could shut down, said Phil Liu, chief legal officer at Los Angeles-based hedge fund Arca.

U.S. exchanges may also lose customers, as instead of going through an exchange or another virtual-asset service provider (VASP), some may simply start trading with others directly, to safeguard their privacy.

The proposed regulations could also impact many of the more than 500 crypto funds that have popped up in the past few years, according to Josh Gnaizda, chief executive officer of CryptoFundResearch. “Trading delays or additional transactional costs as a result of compliance with FATF could significantly chip away at returns.”

If a country doesn’t comply with FATF rules and is placed on its blacklist, “it can essentially lose access to the global financial system,” said Jesse Spiro, head of policy at crypto investigative firm Chainalysis Inc.

After multiple meetings with the crypto industry, the regulators likely know compliance will take time, as the industry mulls new technologies and processes. Some participants are looking at the bright side, as greater oversight could lead to more institutional acceptance of crypto.

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