On June 21, the financial action task Force (FATF) presented the final version of the guidelines for the cryptocurrency industry. In a published document, the FATF obliged bitcoin exchanges and other cryptocurrency service providers (VASPs) to comply with AML and CFT procedures similar to traditional financial companies.
At the G20 summit in Osaka, the organization's member countries supported these recommendations, formally beginning the process of developing appropriate regulatory requirements.
At the same time, Russia is among the countries that are developing legislation for the digital currency industry. So, in may, the adoption of the bill " on digital financial assets "was postponed due to FATF requirements to include the concept of" cryptocurrencies " in it, and later the state Duma prepared proposals for regulating cryptocurrencies according to the recommendations of the organization.
First of all, it should be recalled that a significant part of the cryptocurrency proponents have been advocating their integration into the global financial system for quite a long time. The message about the need for proper regulation of cryptocurrencies has been heard from the mouths of various "evangelists" for many years, and there is certainly a certain reason for this: it is extremely difficult to come to mass acceptance if most regulators prohibit them.
However, as the popular wisdom says, sometimes you need to be careful in your desires. Despite the fact that the content of the recommendations adopted in June, FATF told much earlier, for most of the industry, they still came as a shock.
Help
The financial action task force (FATF) was established in 1989 to develop and develop recommendations to combat money laundering and the financing of terrorism, as well as to monitor their implementation by all 39 member countries.
Over the 30 years of its existence, the FATF has developed a comprehensive framework for implementing these rules and promoting cooperation among its member countries. This includes a total of 40 different recommendations describing the legal framework for financial institutions, as well as the measures needed to prevent money laundering and the information exchange process.
One of these recommendations, number 15, was submitted in 2012. It States that "States and financial institutions should identify and assess the risks of money laundering or terrorist financing that may arise from (a) the creation of new products and business practices... and (b) the use of emerging technologies for both new and existing products".
Best practices for cryptocurrency
In the following years, the FATF has made various separate statements regarding virtual currencies, but it was not until October 2018 that recommendation 15 was officially amended, clearly stating that It now applies to this new type of asset. At the same time, two new definitions were added to the FATF Glossary: "virtual asset" (VA) and "virtual asset service provider" (VASP).
The amendments define a virtual asset as "a digital representation of value that can be traded or transmitted digitally, and can also be used for payment or investment purposes." At the same time, the definition of virtual assets does not include the digital representation of Fiat currencies, securities, and other financial assets that are already mentioned in the FATF Recommendations.
A virtual asset service provider is defined as "any individual or legal entity not mentioned in the Recommendations that performs any of the following activities or transactions: (i) exchange of virtual assets and Fiat currencies; (ii) exchange between one or more forms of virtual assets; (iii) transfer of virtual assets."
The transfer of virtual assets, respectively, is defined as the execution of a transaction on behalf of another individual who moves a virtual asset from one address or account to another; the storage of virtual assets or the management of instruments that control them; the provision of financial services related to the Issuer's offer, and/or the sale of a virtual asset.
Where is the dog buried?
The new FATF rules state that in order for the VASP to operate in accordance with these guidelines, member countries of the organization must require them to comply with Recommendation 16, known as the " Road rule»
This provision deals with non-cash transfers of funds and provides that States must ensure that financial institutions include mandatory information about the senders and recipients of funds and take appropriate measures if such information is not available. It is worth noting that this information also includes the sender's physical address, passport data, or user ID that links it to the company, date, or place of birth.
Please note that these requirements apply to transactions over $1000 or €1000.
Many analysts, including Chainalysis, have tried to convince FATF that it is quite difficult, if not impossible, to comply with the same standards in the blockchain industry as in the banking sector. They also warned the organization that the cryptocurrency business may partially go into the shadows, and the privacy of users and the effectiveness of law enforcement operations may suffer.
However, the new recommendations have been adopted and approved by the G20 countries, after which businesses and governments have 12 months to implement them. The new standards will apply to organizations that work with cryptocurrencies and tokens, such as exchanges and hedge funds. The FATF is expected to conduct its first review of the implementation of the recommendations in June 2020.
What the regulators say
It is necessary to recognize the fact that the criminal world does use cryptocurrencies for illegal purposes, and although this scale is relatively small, the reputation of the industry because of this to a certain extent still suffers.
According to world regulators, the adoption of new standards will help legitimize cryptocurrencies in General, will promote their wider acceptance, and will also increase the security of transactions.
This position is probably best reflected in the statement made by US Treasury Secretary Steven Mnuchin during the FATF plenary session in June:
"By adopting new standards and guidelines, FATF will ensure that virtual asset providers operate outside the grey area and help them avoid interacting with illegitimate regimes and representatives of the criminal world… We are ready to allow the proper use of cryptocurrencies, but we will not allow them to become the equivalent of secret coded accounts and will not allow their further use for illegal purposes, " he said.
One more important clarification should be made: the FATF recommendations are not formally binding, and the member countries of the organization implement them at the level of national legislation. However, if a state does not bring its norms into line with the new standards, it will be included in a kind of "black list", which entails a number of penalties, including restrictions on foreign investment.
What industry representatives say
Despite the optimistic statements of regulators, representatives of the cryptocurrency community in their majority criticized the recommendations adopted by the FATF. The General opinion is that their implementation will be very difficult and may have negative consequences for a significant part of the industry, primarily for custodial service providers.
"This is one of the most serious threats to the cryptocurrency industry. FATF recommendations can have a much greater impact on the industry than the rules of the SEC or other regulators, " said Eric Turner, head of research in the field of cryptocurrencies at Messari.
He also noted that it is also important how regulators in different countries will interpret the presented rules.
Others predict that excessive strictness of the FATF, contrary to expectations, will not promote transparency in the market, but quite the opposite — it may force many cryptocurrency companies to go to the black market.
"The use of banking regulation in the cryptocurrency sphere may force market participants to enter into more transactions directly with each other, and this will reduce the overall level of transparency and increase the risks of fraud and money laundering," coinbase CCO Jeff Horowitz believes.
Bittrex CCO John Roth, meanwhile, notes that while data collection may seem simple on paper, it may be technically impossible to identify the person who owns a particular wallet.
"There are two options: change the way the blockchain works as a technology, or create another parallel blockchain that would serve exchanges. In any scenario, problems cannot be avoided, " he said.
Mary Beth Buchanan, chief legal adviser at Kraken, agrees.
"It is impossible to apply the regulatory rules of the 20th century to the technology of the 21st century. It just won't work," she said.
A similar opinion was expressed by the exchange's regulatory adviser CEX.io Sergey Mokhnev. According to him, the problem is that the architecture of most blockchains is incompatible with FATF requirements. In other words, these requirements are meaningless at best, and impossible to meet at worst.
Sergei Mokhnev also refers to the opinion of Yarek Yakubchek, a strategic analyst at Europol, who said in a conversation with him that " trying to force businesses to do what can't be done is like practicing useless things." According to Yakubchek, it is possible to identify the participants of a transaction if tracking tools work correctly, but this means limiting their privacy and allowing companies to exchange personal information of customers. The question is, what is all this for?
Most of the transactions between the exchanges associated with the activity of traders, which in itself is not a criminal. Thus, the reallocation of resources to a large number of relatively low-risk transactions will shift the focus from identifying criminal transactions and, as a result, negatively affect the prevention of criminal activity, " said the representative of Europol.
As a result, the only benefit for exchanges is to put a cross and report that the regulatory requirements are met. At the same time, a significant portion of transactions will actually go into the "gray zone", leaving law enforcement and financial intelligence empty-handed.
Mixing services and p2p platforms
It is noteworthy that the published FATF recommendations mention mixing services-presumably, they should also collect data about their users. How to implement this in practice, however, is not completely clear.
The CoinJoin technology used in such services is aimed specifically at anonymizing users and they do not hold users ' funds.
As wasabi Wallet lead developer Adam Fichor said in a ForkLog comment, he also doesn't understand how mixer operators should respond to the organization's requirements.
"Custodial services should be regulated because they hold customer funds. Users of such services are already vulnerable, and the requirement to collect personal information makes things worse and gives companies even more leverage over users. This is absolutely crazy advice, but, as I understand it, to Wasabi, they have no relationship," said Adam Ficsor.
The new rules may indeed be a catalyst for many users to leave centralized exchanges. ForkLog asked max Keidun, CEO of the p2p exchange for buying and selling bitcoin Hodl Hodl, for comment.
$9130.31 $206.03
Playing cat and mouse with regulators, or what the new FATF recommendations mean for the bitcoin industry
ARTICLES 18.07.2019
On June 21, the financial action task Force (FATF) presented the final version of the guidelines for the cryptocurrency industry. In a published document, the FATF obliged bitcoin exchanges and other cryptocurrency service providers (VASPs) to comply with AML and CFT procedures similar to traditional financial companies.
At the G20 summit in Osaka, the organization's member countries supported these recommendations, formally beginning the process of developing appropriate regulatory requirements.
At the same time, Russia is among the countries that are developing legislation for the digital currency industry. So, in may, the adoption of the bill " on digital financial assets "was postponed due to FATF requirements to include the concept of" cryptocurrencies " in it, and later the state Duma prepared proposals for regulating cryptocurrencies according to the recommendations of the organization.
ForkLog tried to understand what consequences this decision has for the industry, and also gathered the opinions of experts, who, as expected, differed in their assessments of what is happening.
First of all, it should be recalled that a significant part of the cryptocurrency proponents have been advocating their integration into the global financial system for quite a long time. The message about the need for proper regulation of cryptocurrencies has been heard from the mouths of various "evangelists" for many years, and there is certainly a certain reason for this: it is extremely difficult to come to mass acceptance if most regulators prohibit them.
However, as the popular wisdom says, sometimes you need to be careful in your desires. Despite the fact that the content of the recommendations adopted in June, FATF told much earlier, for most of the industry, they still came as a shock.
Help
The financial action task force (FATF) was established in 1989 to develop and develop recommendations to combat money laundering and the financing of terrorism, as well as to monitor their implementation by all 39 member countries.
Over the 30 years of its existence, the FATF has developed a comprehensive framework for implementing these rules and promoting cooperation among its member countries. This includes a total of 40 different recommendations describing the legal framework for financial institutions, as well as the measures needed to prevent money laundering and the information exchange process.
One of these recommendations, number 15, was submitted in 2012. It States that "States and financial institutions should identify and assess the risks of money laundering or terrorist financing that may arise from (a) the creation of new products and business practices... and (b) the use of emerging technologies for both new and existing products".
Best practices for cryptocurrency
In the following years, the FATF has made various separate statements regarding virtual currencies, but it was not until October 2018 that recommendation 15 was officially amended, clearly stating that It now applies to this new type of asset. At the same time, two new definitions were added to the FATF Glossary: "virtual asset" (VA) and "virtual asset service provider" (VASP).
The amendments define a virtual asset as "a digital representation of value that can be traded or transmitted digitally, and can also be used for payment or investment purposes." At the same time, the definition of virtual assets does not include the digital representation of Fiat currencies, securities, and other financial assets that are already mentioned in the FATF Recommendations.
