- The Financial Action Task Force’s (FATF) published a review last month, measuring the progress from jurisdictions and the private crypto sector in implementing the intergovernmental FATF revised regulatory standards.
- The crypto industry’s lack of progress in implementing the FATF’s anti-money laundering standards has led to fragmented compliance solutions.
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The FATF published a review last month, which measured the progress from jurisdictions and the private crypto sector in implementing the intergovernmental FATF revised regulatory standards.
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Chief among the standards is the Travel Rule, which requires crypto firms globally to securely transmit originator and beneficiary information between each other when making cryptocurrency transfers. The review notes that progress in implementing this particular requirement is incomplete, as there is currently no communication network to reliably transfer identification data along with crypto transactions, akin to SWIFT for traditional interbank transfers. The FATF standards aim to mitigate money laundering and terrorist financing risks by making it easier to identify parties to crypto transactions.
This ongoing compliance challenge risks hindering the crypto sector’s growth. Crypto firms already have difficulties accessing bank services due to bad reputation, and are even subject to national regulator bans. And blockchain analysis firm PeckShield recently found that an estimated $1.4 billion worth of illicit funds went through crypto exchanges in H1 2020, highlighting the need for stricter regulatory requirements.
In response, a host of crypto firms and industry associations have proposed secure communication networks to comply with the Travel Rule, which could lead to fragmentation at the global level. Proposals — such as the Joint Working Group for InterVASP Messaging Standards, the OpenVASP Association, BitGo’s API support, the Sygna Bridge, and more — have outlined communication networks to securely exchange transaction information.
However, this wide range of solutions underlines one main challenge: convincing most or all crypto firms to abide by the same system. Fragmented solutions operating in silos, such as following national borders, would not effectively combat financial crime within the sector. A better approach would be to implement a unified and interoperable system at the global level, which is no easy task. The FATF is perhaps the best forum on which such global coordination can happen, and it should therefore go beyond monitoring progress and actually issue technical guidance for setting up a globally recognized system.
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