A global AML watchdog has called for stricter crypto regulations


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Countries need to apply more stringent requirements on crypto firms that transfer customer funds, the Financial Action Task Force (FATF) said in an updated guidance, per The Wall Street Journal.

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The multigovernment taskforce, which outlines recommendations for combating money laundering and terrorism financing, has said countries should adopt rules requiring crypto firms, including exchanges, to gather information about their customers and share it with other institutions that receive fund transfers, including other crypto firms.

Here’s what it means:The FATF’s initiative marks the first coordinated effort to develop uniform regulations for cryptos.

  • The new guidelines heed to growing concerns that cryptos are enabling nefarious activities. Cryptos have long been viewed as a source for criminals to launder money and finance illicit activities. And the use of this nascent asset class for laundering criminal proceeds has been growing, according to Simon Riondet, head of financial intelligence at Europol, cited by Reuters. Per the new guidelines to stamp these threats out, countries will be required to register and supervise crypto companies like exchanges, compelling them to engage in detailed checks on customers and report suspicious transactions. Earlier this month, the G20 nations reaffirmed intentions to align with these new standards.
  • FATF’s move marks a critical junction in how cryptos are regulated. While digital currencies have been around for over a decade, regulators have been slow to catch up. This is reflected in the patchwork of regulatory standards that have been adopted across countries: Japan has licensed exchanges while China has put an outright ban on them, for instance. As such, the FATF’s efforts signal a breakthrough in aligning governance of how this nascent industry is overseen globally.
  • But the guidelines could prove difficult to comply with for crypto firms. By and large, the wallet addresses on which cryptos are held by consumers tend to be anonymous, making it difficult for exchanges to know who the recipient of a fund is. This is likely to make compliance with the new mandate difficult. Ultimately, the high cost of complying could drive consolidation in the space or even force some smaller players to fold. Worryingly, these new regulations could even push criminals to conduct more person-to-person transactions, which would make law enforcement even more difficult, according to Jeff Horowitz, chief compliance officer at Coinbase, cited by Bloomberg.

The bigger picture:Lawmakers will likely continue to struggle with crypto regulation — but greater oversight could propel the nascent space into the mainstream.

  • Authorities’ contradictory positions regarding Facebook’s crypto efforts highlight the challenges ahead. Following Facebook’s announcement of its crypto project Libra, Maxine Waters, chair of the US’ House of Financial Services Committee, called on Facebook to halt its plans until Congress and regulators can review the project, per Reuters. In contrast, the head of the UK’s central bank gave cautious approval for Libra, outlining a potential avenue for regulating the social media giant’s crypto ambition. These opposing positions highlight a lack of uniform agreement from authorities on the potential impacts and drawbacks of cryptos. Thus, while the FATF’s new guidelines offer a starting point for unifying the global approach, there’s likely a long way to go.
  • But greater oversight could drive institutional interest in cryptos. Amid wild price swings, a constant flow of hacks, and illegal activity, cryptos have failed to find mass adoption. However, even then, institutional desire for exposure to this asset class remains high, with 40% of respondents in a Greenwich Associates survey saying they’re open to investing in these assets over the next five years. However, respondents cited a lack of clarity around regulations as a top obstacle to investing in cryptos. As such, efforts like FATF’s can begin to mollify these worries, cleaning up the industry and making it more attractive to institutional players.

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