The costs of failing to comply with national and international regulations on banking and cryptocurrency can be vast.
They reach far beyond the simple act of being forced to close a non-compliant business. There is the reputational cost. The legal costs of waging a battle through the courts. There can be unlimited fines. South Korea’s market regulator, the Financial Services Commission, for example, recently levied a change to the law for businesses transacting in cryptoassets: each must report to the country’s Financial Intelligence Unit or face jail time of up to five years. The FSC now intends to impose a fine of 100 million won ($88,150) for cryptocurrency executives transacting using their own platforms.
The EU has the fifth Anti-Money Laundering Directive (AMLD5) and the US has the Banking Secrecy Act. Each is scarily complex legislation that all crypto businesses must comply with.
And while businesses may change jurisdictions to circumvent the most onerous reporting requirements, there’s no escaping the Financial Action Task Force. The FATF is the world’s most powerful intergovernmental agency dealing with money laundering and terrorist financing. It was the FATF’s ‘Travel Rule’ that roiled the cryptoasset industry in 2019.
So it was a surprise of sorts to read the 12 month review of the implementation of the FATF’s guidelines in June 2020. They were markedly more positive than before, noting that a high proportion of jurisdictions had put in place procedures to deal with AML and CFT.
Another 12 month review will land on the mat sometime between now and July 2021. So what can we expect?
In March 2021 the authority updated its draft guidance in a typically weighty 99-page report.
The key points are that it will introduce:
Adding specific country-level supervisors for the VASP sector, dramatically ramping up cross-border information sharing.
Support for enhanced red-flag indicators for suspicious transaction reporting, with a focus on cryptocurrency mixers, tumblers or AECs (anonymity-enhanced cryptocurrencies, like Monero and Zcash)
Enforcing the Travel Rule, that personally identifying information must ‘travel’ with cryptocurrency users, and when transfers hit a minimum level of $1,000/
€1,000 or the equivalent in local currency, the name of the sender and receiver will be requested, as well as a wallet address for each person or organisation.
Notice that stablecoins must be supervised in the same manner as any other cryptoasset
It is a dramatic understatement to say that a lot has happened in the cryptocurrency industry in the last 12 months.
We’ve had incredibly important global crypto banking regulations, including new capital rules for banks via the Basel Committee. And the World Economic Forum offering new guidelines for DeFi. Those are just two stories among thousands to parse.
Now the FATF is consulting with the public and private sector before making their recommendations final. Legal and compliance departments in every cryptoasset service provider business worldwide will be hurriedly scanning these vast documents to see where their obligations lie.
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