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The Financial Action Task Force (FATF) is an agency that helps develop best practices for its member countries’ financial industries and ecosystems. Now, it is reported that this governmental body is about to beam its lights on the global cryptocurrency sector. Earlier today, news outlet Bloomberg reported that the FATF will be publishing a note on June 21, with the purpose of providing clarity on how some of its member nations should implement regulatory oversight on their native cryptocurrency sectors.
Citing a confirmation from FATF spokesperson Alexandra Wijmenga Daniel, Bloomberg claimed that the FATF’s note would address various businesses which primary deal in crypto assets and issued tokens, including but not limited to cryptocurrency hedge funds, wallet providers, exchange platforms and much more
Over the years, the FATF has gained a reputation for helping countries to achieve encompassing financial stability by assisting with implementing regulatory, legal, and operational measures with an aim of combating money laundering and other financial crimes.
Various FATF recommendations have also been recognized as valid by the international community, with up to 200 countries- including the United States- being subject to its recommendations and resolutions. According to the report, the prospective FATF rules are expected to apply to firms such as asset managers like Fidelity Investments and crypto exchange platforms like Binance, which expects these firms to collect data on users who initiate transactions in excess of $1,000 or €1,000.
Information concerning such transfers will include details on the senders and recipients of said funds, and the data- as well as each transaction- would be sent to the recipient’s service provider. Bloomberg, however, pointed out that implementing these requirements could prove to be difficult, from both cost and infrastructural standpoints.
Citing a statement from John Roth, Chief Compliance and Ethics Officer at crypto exchange Bittrex, the publication claimed that a lot of cryptocurrencies work on anonymous ledgers, making it difficult for exchanges to know who receives what.
In a comment, Jeff Horowitz, Coinbase’s Chief Compliance Officer, also argued that strictly implementing the reported requirements could have dire effects on cryptocurrency exchanges, causing them to lose customers are a result of compromised anonymity,
Explaining the possible ripple effect of this requirement’s enforcement, he said, “Applying bank regulations to this industry could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement.”
Objectively speaking, Horowitz isn’t wrong. If there’s one thing that exchanges- and in fact, cryptocurrencies at large- provide to entice customers, it’s the promise of anonymous transactions. If this is taken away, then the appeal derived when investors buy cryptocurrencies would be lost, and investors could find alternatives that ensure this anonymous characteristic.
Crypto businesses lose both their customers and their revenues, and regulators are faced with the same privacy conundrum. Everyone loses.
The implications of this difficulty are yet to be seen, especially as the requirements presented in the draft would most likely be subject to each country’s interpretation. However, given all of these difficulties, it would be interesting to see how crypto exchanges and other related businesses would adapt.