How FATF affects the Crypto Industry Today and the Future?

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While it is often said that cryptocurrencies and blockchain technology are unregulated, nothing could be further from the truth. As the cryptocurrency awareness is rising, various institutions across the world are stepping up to offer their opinions, provide their theoretical contributions and regulatory recommendation that either promote or curtail the growth of crypto technology.

Among the institutions that have been truly powerful recently when it comes to setting the standards for crypto exchanges, crypto trading platforms, digital assets companies and other fintech businesses is the FATF.

The Financial Action Task Force (FATF) is an inter-governmental policy-making body which aims to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Earlier in June 2019, the FATF issued the new guideline that clarified additional recommendations subjected to virtual assets and service providers (VASPs) as discussed during the panel discussion at Blockshow Asia 2019 held in Singapore last two weeks. The recommendations include cryptocurrency exchanges, to something akin to the “travel rule” that currently applies to banks. It would require VASPs to provide each other with information about their customers for each transfer of crypto.

“Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers” (Recommendations) addresses the following:

  1. How do virtual assets activities and virtual asset service providers fall within the scope of the FATF Recommendations? (Section II)
  2. How should countries and competent authorities apply the FATF Recommendations in the context of virtual assets or virtual asset service providers? (Section III)
  3. How do the FATF Recommendations apply to virtual asset service providers and other entities (including banks, securities broker-dealers) that engage in or provide virtual asset covered activities?

The Recommendations define VASPs broadly, to include:

Any natural or legal person who is not covered elsewhere under the Recommendations and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

  1. Exchange between virtual assets and fiat currencies;
  2. Exchange between one or more forms of virtual assets;
  3. Transfer of virtual assets;
  4. Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  5. Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Regulations are supposed to protect consumers. That is their aim. They regulate the function of a thing, not the form. They don’t care if it is traditional banking system or they don’t care if it is a blockchain system. But what they expect is it meets the same criteria so they can monitor and detect criminal behaviours such as crime, money laundering, sex trafficking and many more.

Dimitrij Gede, VP Business Development, EU Markets at iComply Investor Services

In terms of regulations, cryptocurrency’s journey is the story of a technology rapidly outpacing the laws that govern it. It is essential for the future of digital finance to be regulated in bringing legitimacy to the digital financial market, and making it more attractive for new businesses, established banks and investors worldwide to more easily conduct business within the emerging technology.

Surely, we will see more developments in cryptocurrency and blockchain regulations as more countries become aware, interested, and even threatened by the decentralized technology.

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