Cryptocurrency Companies Assess How They Can Comply with Anti-Money Laundering Regulations


Recent guidance from the Financial Action Task Force has led the cryptocurrency industry to find a common basis for stricter controls.

Cryptocurrency Transfer Rules
Cryptocurrency Transfer Rules

Under the new Financial Action Task Force guidelines, crypto companies are required to transfer customer data to other financial institutions when the transfer amount is more or equal to $1,000.

The industry is in a hurry to comply with the new anti-money laundering regulations that require exchanges of information about their customers.

FATF Standards Anti Money-Laundering Goal

The standards adopted by the Financial Action Task Force on Money Laundering in June require that e-money exchanges, some e-wallet providers and other companies transmit customer information, including their name and account numbers, to institutions receiving transfers similar to an electronic transfer. The so-called travel rule is intended to help law enforcement agencies detect suspicious activity. The FATF is a global organization dedicated to the fight against money laundering.

Difficult to Implement for the New Crypto industry

But it was a bit of a headache to figure out how to meet the standards. According to market leaders, crypto companies do not have the infrastructure to transfer customer data to each other. In addition, the decentralized crypto industry faces the challenge of reaching a consensus on how to pay for and regulate an eventual exchange system.

Is this possible? Yes, said Jeff Horowitz, director of the compliance department at Coinbase. But is there any way to exchange this data today? No

Horowitz, who last year joined the San Francisco Stock Exchange at Pershing LLC, a division of the Bank of New York Mellon Corp, said compliance with travel rules was one of his top priorities. Coinbase is currently working with other organizations to develop a compliance plan, he said.

Under FATF guidelines, cryptographic companies must transfer customer data to other financial institutions when they transfer $1,000 or more. A similar rule has been applied to U.S. financial institutions since 1996.

The FATF was founded 30 years ago by the Group of Seven Leading industrial Countries and regularly reviews anti-money laundering legislation in its 37 member states. Obtaining a negative rating can be humiliating and if the violations are serious enough they could lead to the restriction of the country’s access to the financial system. The US Treasury Department has stated that the travel rule applies to cryptocurrency processors also.

The FATF guidelines aim to prevent global regulatory arbitrage and encourage countries to strengthen the regulation of cryptocurrency transactions.

The travel rule is also intended to provide investigators with a control trail that can be used if a terrorist attack ever occurs and to provide regulators with a way to unleash targeted sanctions.

The challenge for the industry is to develop an approach to sending and receiving customer data in a secure and standardized manner. Leaders report that they meet regularly, participate in working groups and evaluate technology vendors’ offers. It can take several months to find a solution according to industry officials.

The industry is looking at existing solutions and standards that will be applied, said Teana Baker Taylor, executive director of Global Digital Finance, the London association that set up a working group on data travel-rule principles, storage and other related topics.

FATF requirements have been criticized by the industry. Among the complaints: they may be expensive for new businesses and may not be appropriate for an industry that values anonymity.

There is also a concern that the travel rule may encourage disillusioned customers to rely more on unregulated peer-to-peer transactions. The FATF is following this issue closely, said Mr. Neilan.

The Washington-based Digital Chamber of Commerce has asked the FATF to devote more time to working with the crypto industry on new standards.

FATF Standards Must be Implemented

We’re looking at old rules and how to apply them in this situation, said Amy Devin Kim, director of politics instead of looking for new ways to use blockchain technology to help law enforcement.

Leaders say they face a number of logistical challenges and to find the best way to address them. The key between them is how to share information so that only other exchanges and companies subject to travel rules can access it, Horowitz said. The risk is that the customer data will be in the wrong hands.

In addition, if non-FATF countries adopt a different set of standards this could lead to a nightmare scenario. However this is exactly what exists for traditional banks, which operate under different rules for different countries.

In June, the FATF announced that it will monitor countries’ and companies’ compliance and conduct reviews every 12 months in June 2020. The administration stated that the implementation of a compliance system by that date and its implementation is an ambitious goal.

The next few months will be a test case for the developing crypto industry, Horowitz said. What impresses me is the speed with which the new industry is teaming up and working together, he said. We will do it all in a short time.


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