Bloomberg has recently reported that the Financial Action Task Force (FATF) is expected to release guidelines for over 200 countries (including the United States) regarding the oversight of virtual assets on June 21st. FATF is a multi-government collaboration which provides recommendations to its member states for combating money laundering and financing of terrorism, whose upcoming guidance is set to present many actors in the cryptocurrency space with a challenging obstacle.
FATF guidelines are expected to primarily impact firms which deal directly with cryptocurrencies such as exchanges and hedge funds, reportedly forcing such businesses to verify the identities of anyone sending or receiving more than $1,000 worth of digital assets. The recommendations take oversight far beyond the conventional Know Your Customer (KYC) practices adopted by many major exchanges, by also requiring service providers to provide data on the recipient of the funds, and even to share that data with the recipient’s own service provider together with data on each transaction.
The G20, an international forum for the governments and central bank governors of 19 countries and the European Union, has recently affirmed that they will stand behind the strict proposals by the FATF, according to CoinDesk. Whilst meeting at the Fukuoka summit in Japan, finance ministers and central bank governors made a mutual commitment to enforcing the strict procedural guidelines and issued a statement on the matter through the Japanese Finance Ministry website. The message did, however, also imply a cautious understanding of the transformative potential of blockchain:
“Technological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy. While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks”
The recommendations will be subject to the interpretation of the various national regulators, however non-compliance will result in harsh penalties; nations that fail to adequately comply with FATF guidelines are at high risk of becoming blacklisted, eventually losing access to the global financial system. Given this, the G20 statement of cooperation may come as no surprise.
Industry figures have responded differently, with Jesse Spiro from blockchain intelligence firm Chainalysis deeming such regulation necessary for the progression of the space. Jeff Horowitz, Chief Compliance Officer at Coinbase, is however urging the FATF to consider the unintended consequences of applying bank regulations to the cryptocurrency industry. Horowitz stated that the move ‘could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement’.
Although new regulations are set to send disruptive shockwaves throughout much of the cryptocurrency space, regulators understand that enforcement and compliance take time as the industry acts to adapt to new requirements and processes. The full extent of the impact on the practices of exchanges and other industry service providers is not yet clear, but the threat of harsh penalties for non-compliant nations will undoubtedly result in the regulatory environment becoming notably stricter in the near future.
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