New FATF Requirements & What They Mean for Cryptocurrency Exchanges
New guidelines released last month from the international Financial Action Task Force (FATF) have caused quite a stir in the crypto community. Some have called it the “end of anonymity” for digital tokens, while others have lauded the new rules as important steps toward legitimizing cryptocurrency. To be sure, the controversial FATF requirements will have a big impact on cryptocurrency, specifically cryptocurrency exchanges and other service providers.
1. What Are the New FATF Requirements?
The Financial Action Task Force is an intergovernmental body composed of leaders of national treasuries and federal banks from 39 countries around the world, including the European Commission, United States, and China. The FATF began in the 1980s as a way for governments to cooperate on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) activities and policies.
The new FATF Recommendation 15 lays out detailed requirements for member countries on the regulation of Virtual Asset Service Providers (VASPs). Indeed, virtual assets explicitly include cryptocurrencies, and the requirements on service providers apply to crypto exchanges and other crypto-handling entities that provide client services.
Crypto experts are concerned about Recommendation 15 specifically in regards to paragraph 7(b):
“Countries should ensure that originating VASPs obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts (if any), and make it available on request to appropriate authorities.”
In addition, beneficiary accounts should collect and store the same information.
In summary, paragraph 7(b) requires cryptocurrency exchanges to collect and share account holder information whenever a transaction occurs between exchanges or other VASPs.
Known as the “travel rule” in traditional banking, sharing account holder information when a transfer occurs is a common AML practice for fiat currencies. The challenge, of course, is so many cryptocurrencies rely heavily on anonymity. The burden of compliance could become quite high.
2. Is This a Law?
To be clear, FATF recommendations are not law. With these new guidelines, cryptocurrency exchanges are not yet compelled to comply.
However, the FATF holds tremendous influence over its member states. Each country in the FATF is expected to issue its own matching legislation or regulations in order to comply with the FATF recommendations. If they do not, they risk being added to the FATF graylist or blacklist, which could severely limit their access to markets and credit.
The recommendation gives member countries 12 months to enact legislation or regulations meeting the guidelines.
Continue reading at www.skalex.io
