As the battle for acceptance into mainstream economics rage on, the cryptocurrency ecosystem continues to face daunting regulatory challenges. And as far as financial regulatory policies go, one perceived to likely have a far-reaching effect on the development of the cryptocurrency industry may soon set in, as the 21 June deadline approaches for the implementation of the Financial Action Task Force’s (FATF) Interpretive Notes as part of its virtual currency standards.
A recent report from Bloomberg indicates that the move by FATF in its Interpretive Notes – designed to clarify how virtual assets are to be regulated, may yet be the greatest fear for the industry.
“Their recommendation could have a much larger impact than the SEC or any other regulator has had to date”, says Eric Turner, director of research at crypto researcher Messari Inc. Although Turner thinks much of the rules will be subject to the interpretation of the individual jurisdictional regulators, he was of the opinion that the recommendation remains “one of the biggest threats to crypto today”.
The report further reflects on the FATF guidelines which advocates for a thorough know your customer (KYC) and anti-money laundering (AML) approach to be adopted by countries; noting that it may, however, be expensive to implement given that a good number of cryptocurrency wallets are designed for anonymity. For the recommendations, it may require “a complete and fundamental restructuring of blockchain technology,” suggests John Roth, Bittrex’s chief compliance and ethics officer, emphasizing on the cost-impact on compliance.
The FATF, as a multi-government initiative whose sole objective to provide standards that promote the necessary policy measures against money laundering and terrorist financing, could pose a serious challenge to the freedom of use of cryptocurrency. Such that, its recommendations to member countries to “apply a risk-based approach”, will undoubtedly have a blanket effect in over 200 countries, should it be adopted. This, perhaps, will invariably apply undue pressure on cryptocurrency exchanges and custodians to release sensitive data of their users, which, in turn, may drive wary customers to other means of transacting their cryptocurrencies.
Recently, the Japanese regulator stepped up its anti-money laundering campaign against non-compliant cryptocurrency exchanges in a bid not to fall short of the expectations of the FATF, after having received a lowest possible ranking back in 2018. This goes on to show the importance and steep ramifications of the FATF’s recommendations.
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