FATF Needs A Whole New Approach To Cryptocurrency Regulation, Emerged At V20 Summit

The Financial Action Task Force (FATF) needs a whole new approach when it comes to controlling cryptocurrencies, according to Sian Jones, the driving force behind much of the industry's anti-money laundering (AML) standards to date.

Facilitate the requirements of the travel rule

Speaking at the close of the second annual V20 Virtual Asset Service Providers Summit, Jones said FATF only needs to look at the rapidly changing world of decentralized finance (DeFi) to see how incongruous the traditional transaction control system created half a century is becoming. ago from SWIFT.

As an AML guarantor globally, FATF has recommended local regulators in G-20 countries and beyond to try to graft the so-called travel rule requirements on digital assets, where intermediaries (virtual asset service providers, or VASPs) must share users' personally identifiable information about crypto transactions on platforms such as Bitcoin Revolution.

However, the cryptographic core is about removing middlemen, something DeFi clearly demonstrates, Jones said. It added that the FATF appears to have only partially understood the fact that "cryptography arose from the desire of some, not to circumvent authority, break the law or facilitate money laundering, but rather to remove intermediaries, to disintermediate traditional finance ".

Members only

The second day of the V20 Summit, which was dedicated to members only, was heard by several representatives of major DeFi platforms. “The FATF needs to redouble its engagement with all players, including DeFi software developers and users outside the industrialized crypto world,” Jones said.

"Likewise, the industry needs to work together more closely to speak with one voice and increase its engagement with the FATF and regulators." Jones then suggested that meetings to speak with the FATF occur more frequently, monthly rather than quarterly.

FATF friction

Malcolm Wright, chief of AML at Global Digital Finance, highlighted areas where standards could help remove pain points, including directory sharing and customer data storage.

“Some solutions are working on a directory or VASP search,” Wright said. “Another could be a security standard for data storage, such as how it is protected and kept separate. Furthermore, we must not overlook the need to filter information for sanctions, although a standard will probably not be necessary ”.

Leaving aside the details in FATF's VASP universe - which is quite limited to the so-called “industrialized crypto” space - the elephant in the room remains what happens with private or non-hosted wallets.

This is often seen by regulators as a kind of boon to illicit activities but, as stated earlier, it is a fundamental principle of cryptography, as well as a necessary way to avoid hacking regularly recurring exchanges. “Over the next few years there are a whole host of simply huge problems to resolve on unsecured private wallets,” said Dave Jevans, CEO of CipherTrace.