Established in 1989 with the primary objective of preventing activities such as money laundering and terrorist financing, the Financial Action Task Force (FATF) has circulated recommendations for cryptocurrency exchanges. The organization wants crypto exchanges to share the information of users with each other, whenever funds are transferred between firms.
David Kemmerer, CEO at CryptoTrader.Tax, while providing his take on regulations to BlockPublisher, raised a very important point. He stated that as countries continue to regulate digital currencies, it must be ensured that countries must take great care while introducing regulations. He said that under the circumstances of over-regulation, innovation can stifle down and great companies would be pushed out of your country.
As per the latest recommendation, FATF puts forward an unusual requirement for all crypto exchanges to abide by FATF, that possesses about 37 member countries. FATF, the intergovernmental body has allowed countries to implement recommendations within 1 year.
Under the latest guidance, FATF urges countries to be all aware of crypto transactions taking place. Precisely, information such as originator’s name and their account number, beneficiary’s name and account number and originator’s geographical address or national identity card number should be maintained and recorded by countries.
Apart from this, FATF also remarked about the possibility of making license compulsory for individuals using crypto wallets, especially for businesses. In this regard, FATF elaborated:
“In cases where the VASP is a natural person, it should be required to be licensed or registered in the jurisdiction where its place of business is located—the determination of which may include several factors for consideration by countries…..Individuals are not VASPs if they use crypto to buy goods or services or if they make “a one-off exchange or transfer.”
The requirements in the final recommendations released by the FAFT have taken the crypto world as privacy was one of the signature traits of blockchain. A few months ago, the data analytics company, Chainalysis even suggested that as crypto exchanges did not have sufficient resources or infrastructure to send know-your-customer (KYC) information of their customers during the transaction.
Chainalysis concluded that by making such prerequisites as mandatory for exchanges, FATF could affect businesses of several cryptocurrency exchanges that may ultimately cause exchanges to shut down.
FATF has laid numerous rules but its member countries have to pass legislation or devise regulations to make sure that recommendations are part of the law. All the countries not complying FATF instructions will also be blacklisted.
FATF is trying to set a standard for all its member countries indulged in cryptocurrency dealings. Clarified by the U.S. Secretary of the Treasury, Steven Mnuchin, the reason behind FATF providing guidelines and standard is to hinder virtual asset service providers from operating in the dark. Explaining the consequences of these guidelines, he added:
This will enable the emerging FinTech sector to stay one-step ahead of rogue regimes and sympathizers of illicit causes searching for avenues to raise and transfer funds without detection.
In an attempt to regulate cryptocurrencies, FATF has set up a challenging task for crypto exchanges. The motive behind imposing recommendations is to eliminate evil practice like money laundering and terrorist but this time, FATF has gone too far to ensure that the goals are achieved.
FATF is very active nowadays with its efforts for making crypto space a safe place for the crypto enthusiasts. However, there are also other organizations working for the betterment of crypto space. CA. Aanchal Thakur, Partner at DayOrg Consulting Group also talked to BlockPublisher over the matter. DayOrg is a group of consultants working with startups and growth stage organizations, working in disruptive technology space. Aanchal elaborated the function of other bodies and organizations on various aspects of matters related to blockchain and cryptocurrencies regulations. Apart from FATF, he outlined BCBS and OECD working to bring improvements in the crypto space. He explained:
Basel Committee on Banking Supervision (BCBS) – Provides guidelines for Banking Regulations is working on providing recommendations for Banks that are dealing with crypto assets or associated with organizations with crypto assets.
Organization for Economic Cooperation and Development (OECD) – Is researching and providing recommendations on crypto tokens and asset tokenization. They are also working on the impact on financial markets due to this.”
Cryptocurrency and blockchain regulations are more sensitive matters than widely perceived. In order to make the general public safe and protected from wrongdoings such as money laundering and terrorist financing, regulations are necessary. But there must be a balance maintained before making recommendations and amendments because perturbing the crypto exchanges by asking them to change the core of their operations for the sake of preventing illicit activities is more harmful for the mass adoption.