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What to Expect From the New FATF Crypto-Guidelines?

What to Expect from the new FATF Crypto-Guidelines?The FATF (Financial Action Task Force) has recently issued a new set of guidelines which are applicable to the crypto sector, mainly with regard to Virtual Assets (VA) and Virtual Assets Service Providers (VASPs). But let´s bring some order into something that might otherwise be slightly confusing and which implications have generated some degree of alarm in the crypto community.What is FATFThis financial task force was created back in 1989 by the then G7 ministries to set standards and promote the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is not a legislative body, it does not have binding regulatory power, it is therefore merely a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. Its guidelines are just that, guidelines, which means they are neither laws nor regulations and are not binding for anyone until they are adopted and implemented within national jurisdictions by member states.However, FATF power shall not be underestimated. In fact, member states who do not comply with its guidelines could be blacklisted and therefore subjected to stricter controls in their interactions with other countries within the legacy financial system.At present only two countries, Iran and North Korea, are blacklisted while a number of other countries are being closely monitored, among them Panama, Syria, Bahamas, Pakistan and Tunisia. Since 1989 FATF has grown into a network of 38 member countries covering over 200 jurisdictions worldwide thanks to a number of affiliate organizations. Its reach is undoubtedly global.Recommendations and GuidelinesFATF has operated by releasing a set of Recommendations and subsequent interpretative guidelines. The latest set of Recommendations was released in 2012. Periodically then — whenever new developments arise — it is necessary to re-interpret the Recommendations based on the new developments. Therefore new interpretative guidelines are regularly released. In February 2019 an Interpretative Note was issued, which then became final in June 2019 when this new set of guidelines — dealing with VA and VASPs — has been released.Background — Virtual Assets and Virtual Asset Service ProvidersThis new set of guidelines is applicable to VAs and VASPs as they were defined in the previous October 2018 guidelines.Just to recap, a Virtual Asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. The guidelines exclude digital representations of fiat currencies such as e-money or stablecoins, as well as security tokens or other financial instruments already covered elsewhere by the recommendations. Cryptocurrencies — such as BTC, ETH or XMR — and various types of non-security tokens are falling under the guidelines.As far as utility-tokens are concerned, it seems that the deciding factor which makes the guidelines applicable or not — according to para § 47 — it is whether a token is transferable, exchangeable, fungible or not. Indeed FATF clarifies that it does not seek to capture the types of closed-loop items that are non-transferable, non-exchangeable, and non-fungible…such as airline miles, credit card awards, or similar loyalty program rewards or points, which cannot be sold in a secondary market.Virtual Asset Service Providers are defined as natural or legal persons who carry out one or more of the following business activities:i) exchange between VAs and fiat currencies;ii) exchange between different VAs;iii) transfer of VAsiv) safekeeping and/or administration of VAs or instruments enabling control over VAsv) participation in and provision of financial services related to an issuer’s offer and/or sale of VAs.The above definition is wide enough to include exchanges and transfer services, wallet providers, custodial services such as those that host wallets or maintain custody or control over another person’s VAs, wallets, and/or private keys, as well as providers of financial services to an ICO.But that’s not all. Included might be escrow services, like those involving smart contract technology, when the entity providing the service has custody over the funds; brokerage services that facilitate the issuance and trading of VAs; order-book exchange services, which bring together orders for buyers and sellers, typically by enabling users to find counterparties, discover prices, and trade, potentially through the use of a matching engine for buy and sell orders; and advanced trading services such as trading on margin or algorithm-based trading.How VASPs will be impacted by the GuidelinesThe guidelines update and impact in particular the existing Recommendations nr. 10 and 16.Under Nr 10 the threshold above which VASPs should carry out a customer due-diligence for the purpose of AML/TF (Anti Money Laundering/Terrorist Financing) is lowered to a transfer of merely €ur/US$ 1.000, instead of the normal €ur/US$ 15.000 applicable to fiat transfers.Under Nr. 16 the VASP of the transferor must identify and collect all personal information about the transferor and share it with the VASP of the transferee. The same should do the VASP of the transferee. Basically both parties to a transfer must be identified (just like it happens with bank wire transfers).Comments and practicalitiesFrankly, I miss the rationale behind the above provisions which are mostly unenforceable and of little practical use and which will not adversely impact ML/TF activities but will rather increase compliance costs, needless paper-work and maybe slow down the growth of the crypto sector in those countries which will implement them.How lowering 15x the threshold for occasional VA transactions can be effective against ML when — facts based — crypto laundering represents only 0,081% of the annual US$ 2 to 4 trillion global fiat money laundering problem?It is like reducing global CO2 emissions by prohibiting farts.Moreover, how do you practically identify the beneficiary of a non-custodial BTC address? (i.e a new address of which someone privately holds the keys and not an address at an exchange or broker or custodian). No way.In addition, this provision will encourage peer-to-peer transfers via non-custodial wallets, which makes it much harder — if not impossible — to track and control for the authorities. For example, I could send funds from an exchange to a non-custodial wallet (where I control the private keys). From that wallet I could then send the coins to a different exchange, and neither platform would see both sides of the transaction.Conclusionscourtesy of shutterstock.comUnless you believe that the FATF is staffed by grossly incompetent people on crypto related matters, then the only conclusion to be drawn is that the real reasons for implementing both impractical and unenforceable guidelines lie somewhere else.Is this a try to damage the sector? Or is this maybe a clumsy attempt to strengthen the grip of the legacy financial industry on the crypto sector, like they did with the infamous Bit-Licence in New York?Practically, the US are — more or less — in bad terms with more than two thirds of the worldOr maybe is this a US led move to make it more cumbersome for sanctioned countries — such as China, Russia, most of the Middle East, half of Central and South America, half of the African continent and maybe soon also the EU — to circumvent the sanctions by using crypto instead of the greenback?I ask: Cui prodest?Time will tell.Luckily, truly decentralized blockchains (like BTC) were born for that very same reason: to be censorship resistant, resilient and without central points of failure.US Treasury Secretary Steve Mnuchin put his weight behind the FATF guidelines released in June 2019Now, the FATF can blacklist financial institutions in non-complying countries. But what the blacklisting of a VASP will practically achieve? Let´s assume X country does not implement the guidelines. Assume also that FATF blacklists a crypto exchange in X country.The blacklisting can only apply to fiat transactions between financial institutions within the legacy financial system which will be subject to more scrutiny. It will affect investors wanting to transfer fiat funds to that exchange.A non-custodial BTC address and its public and private keysBut as shown in the above examples it cannot affect peer-to-peer crypto transfers and it will not prevent you and any other individual and business from transferring — from any non-custodial address — cryptos to such blacklisted exchange regardless of the sanctions/blacklisting. And vice-versa.As always, draw your own conclusions.*******************************************************************If you enjoyed this post, please “clap” Xtimes in the bottom left corner so it will be shared with more people. Many Thanksblockchain #bianconiandrea #crypto #thinkblocktank #fatf #bitcoin #moneylaundering #terroristfinancinghttps://medium.com/media/3c851dac986ab6dbb2d1aaa91205a8eb/hrefWhat to Expect From the New FATF Crypto-Guidelines? was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.
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All Roads Lead to Osaka: The FATF’s New Crypto Rules

By Ben Cohen, Head of Marketing at Torca. Bitcoin was designed for pure decentralisation and the sovereignty of its holder and since its birth, over 2200 more cryptocurrencies have been minted. It’s widely agreed that virtual assets will be the future of money. However, the transition to that point from a post-economic crash counterculture is a long and winding road. The centralised economy benefits from decades of legislation and regulation and the security that offers; crypto evangelists seek the same security for the decentralised economy while retaining the autonomy of its participants. This presents a conundrum that will take significant innovation to solve. So, last week, the cryptocurrency industry looked towards Osaka. Running concurrent to the G20 Summit, a round table—dubbed the ‘V20 Summit’—brought together government agencies, leading crypto companies and representatives of the Financial Action Task Force (FATF) to discuss a workable, unified regulatory approach for all market participants. The FATF’s proposed standards The summit presented a fantastic opportunity for industry experts and legislators to collaborate on the best route forward, but a key driver for this conversation are the recommendations that the FATF finalised this week. The inter-governmental body is already moving forward with the expectation that they laid out in their Interpretive Note from February this year. Virtual Asset Service Providers (VASPs), they say, should “obtain and hold accurate originator information on virtual asset transfers”. This direction, which clearly aims to protect consumers and stem the flow of cryptocurrency-based money laundering, runs contrary to the nature of many digital currencies. The digital wallet addresses used to store virtual assets are generated randomly, contain no detail about the owner and do not exist on a single register. What the FATF proposed would equate these addresses with conventional IBAN numbers, which contain the country, bank, brand and account number of a transaction originator. The implementation of these rules would either mean a fundamental restructuring of Distributed Ledger Technology (DLT) or the building of a brand new system that works in line with the FATF’s requirements. Contributing to this vital conversation in Osaka were big crypto players such as Huobi, Coinbase, Kraken and international industry bodies Global Digital Finance, the Australian Digital Commerce Association (ADCA) and ACCESS of Singapore. It is vital that the industry has a voice at the table, not to ward off rules and regulations completely, but to ensure that a more measured approach is taken than that which the FATF has proposed. A favourable outcome for the industry would be one where sufficient regulatory oversight is achieved while the speed and openness of distributed ledgers are preserved. A pivotal point for crypto On face value it’s clear to see why the FATF have taken this approach. Money laundering and other criminal activity has been a thorn in the side of the crypto space and the FATF, which represents 36 countries, was created after 9/11 to set global standards that combat exactly that.  Stories of cryptocurrency theft and its use in financing criminal organisations are a key theme in the general public’s crypto consciousness. Mt. Gox, a Tokyo-based exchange, went bankrupt in 2014 after losing $435 million of bitcoin to hackers; in 2018, Coincheck, BitGrail and Tech Bureau similarly lost a combined $771 million and most recently, Binance lost $41 million of bitcoin in May this year. It has also been reported to the U.N. Security Council that North Korea has successfully attacked Asian cryptocurrency exchanges at least five times, acquiring $571 million in the process. The recommendations mimic the longstanding “travel rule” that international banks are subject to. Under the guidance, each cryptocurrency transfer would need to include five pieces of information: The originator’s name; The originator’s account number where such an account is used to process the transaction (e.g. the virtual asset wallet); The originator’s physical address, or national identity number, or customer identification number (i.e. not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth; The beneficiary’s name, and; The beneficiary account number where such an account is used to process the transaction (e.g. the virtual asset wallet). But the unique nature of virtual assets and the underlying technology asks for an equally unique solution. The travel rule was created for a system where transactions had clear intermediaries, so rather than focusing solely on screening the originator and the beneficiary, perhaps the onus of these rules should be on how to demonstrate regulatory compliance through blockchain’s native transparency and traceability. Just last week, Ripple papered a partnership with crypto RegTech startup Coinfirm to explore precisely this. Ripple’s XRP is the third-largest cryptocurrency and the deal will enable them to collect more anti-money laundering data about its users – without needing their actual identities. Information such as whether not an address is owned by an exchange that allows anonymous trading and whether or not the entity that owns the address is registered in a country deemed high risk will contribute to a grade of low, medium or high risk for the user, all without the need for personal data. Certainly a novel solution, but whether the FATF deem this as sufficient for their requirements is yet to be seen. For crypto in its current state, the guidance proposed would tick boxes when it comes to increasing overall global governance and helping to reduce money laundering, but it stifles innovation and lands significant compliance costs at the doors of service providers in favour of a relatively easy fix. Furthermore, by rendering services non-compliant, cryptocurrency transactions may be driven underground through non-custodial wallets, away from official venues where processes and rules can be more effectively maintained. Finding a fix It is important to note that the FATF guidance is not immediately binding; there is a 12-month period within which member countries should independently legislate for the rules before they risk being placed on a blacklist. This gives some time to find a suitable fix. JP Morgan have developed a solution called the Interbank Information Network (IIN) to fulfil this purpose, although it is specifically for banks. The IIN is a blockchain-powered peer-to-peer network which “allows member banks to exchange information in real-time as a way to verify that a payment has been approved.” A private, permissioned blockchain such as this is precisely what VASPs would need to fulfil the FATF requirements. But therein lies the problem: a standardised KYC chain isn’t in common use today and we are yet to see it in practice. The crypto space moves quickly, but can it move fast enough to deliver a global blockchain that facilitates the exchange and verification of information between VASPs? So what’s next? Cryptocurrency exchanges and custodial wallet providers will certainly feel the operational and compliance burden of these rules, but asking privacy-conscious cryptocurrency users to relinquish their personal data may cause an exodus. Some exchanges—which have somewhat of a chequered past when it comes to securing currency—have faced criticism over lax KYC processes. Now, with increased KYC requirements, users may rightly feel unnerved in handing over yet more information. With regards to finding a solution, Mary Beth Buchanan, General Counsel at San Diego-based cryptocurrency exchange Kraken, says “there’s not a technology solution that would allow us to comply fully. We are working with international exchanges to try to come up with a solution.” So, VASPs are preparing to comply with the FATF’s rules as they are within the time limit given, but the general feedback from the industry highlights the importance of the discussions in Osaka. The summit had four key initiatives: An urgent meeting of key parties during the G20 Summit in Osaka including government agencies and crypto companies, as well as notable representatives of the FATF working group A coordinated proposal for ‘bottom up’ regulation by the industry and to influence the standards proposed by FATF to better reflect the unique nature of virtual asset transactions A proposal for the extension of the timeline for the updated FATF standards to come into effect to allow an appropriate response to be prepared Development of protocols and standards to underpin a new platform (or similar) to meet the information collection requirements of FATF A favourable outcome for the industry would be one where sufficient regulatory oversight is achieved while the speed and openness of distributed ledgers are preserved. The current President of the FATF, Marshall Billingslea, cited cryptocurrency regulation as an urgent priority, so time is a precious commodity as the dialogue progresses. An extension to the 12-month transition period may be necessary to develop the best possible technological solution to the money laundering problem, but we are on the precipice of another new dawn; one where the cryptocurrency space is no longer seen as radioactive by traditional financial services and where true collaboration can take place. At the close of the V20 Summit, the attendees signed a Memorandum of Understanding “to establish an association to provide a global unified voice for the virtual asset industry”. In the short term, the FATF recommendations appear to present problems by retrofitting rules, but we can hope that in practice, they contribute to new, progressive industry standards and protect legitimate cryptocurrency users. All views expressed in this piece are those of the author and do not necessarily reflect the official policy or position of Torca or any of its employees. The post All Roads Lead to Osaka: The FATF’s New Crypto Rules appeared first on The Fintech Times.
The Fintech Times

CipherTrace and Shyft announce collaboration to address the FATF ‘Travel Rule’

Cryptocurrency intelligence company, CipherTrace, will partner with Shyft, a company that develops federated identity and blockchain attestation platforms, to help exchanges secure the identities of their users, in light of new crypto-regulations. This partnership took place under the recommendation and guidance of the Financial Action Task Force (FATF). The companies have been working on a solution for […] The post CipherTrace and Shyft announce collaboration to address the FATF ‘Travel Rule’ appeared first on AMBCrypto.
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India thinks whether to ban or not BTC, Upbit states the importance of crypto regulation, Dutch central bank to regulate crypto companies, Spain is preparing a draft regulation bill, South Korea convenes for debate with seven crypto exchanges, Chile declares that crypto regulation is in progress & other news on regulation

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DIGEST

Russia edits its draft law on cryptos, Japanese crypto exchanges gain power to self-regulate, Albania plans for regulatory framework, FATF to come up with its first set of crypto rules, CGL partners with National Bank of Canada and Skuchain, China plans implementation of new rules, SEC confirms the launch of FinHub, owner of Unocoin arrested for operating BTC ATM

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What does it take to be part of the next wave of Bitcoin Billionaires? Tim Draper answers

As crypto ecosystem consistently redefines its new peak in terms of adoption, fiat investors and new players are seeking opportunities to be a part of the next wave of Bitcoin Billionaires. One of the early birds, Tim Draper leads this space in terms of making sizable investments and returns in Bitcoin. Having complete faith in Bitcoin’s […] The post What does it take to be part of the next wave of Bitcoin Billionaires? Tim Draper answers appeared first on AMBCrypto.
AMBCrypto

Bitcoin Law Review - Blockstack's Reg A+, CFTC vs Bitmex, Gov't vs Libra/Crypto

https://ToneVays.com by @ToneVays https://twitter.com/ToneVays Topic 1: Reg A+ & Blockstack https://www.sec.gov/Archives/edgar/data/1719379/000110465919020748/a18-15736_1ex1a15addexhbd6.htm https://www.theblockcrypto.com/2019/07/12/blockstack-garners-reg-a-approval-but-that-doesnt-mean-crypto-icos-will-boom/ Leads into Topic 1a on Broker-Dealers & Custody https://twitter.com/philipliu/status/1149907881061302272?s=12 https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities https://bitcoinmagazine.com/articles/op-ed-latest-finra-sec-security-token-custody-rules Topic 2: Government vs Libra/Crypto https://twitter.com/realDonaldTrump/status/1149472282584072192?s=09 https://www.cnbc.com/2019/07/18/first-on-cnbc-cnbc-transcript-treasury-secretary-steven-mnuchin-speaks-with-cnbcs-squawk-box-today.html https://www.cnbc.com/2019/07/18/mnuchin-says-us-will-ensure-bitcoin-doesnt-become-like-anonymous.html https://www.cnbc.com/2019/07/18/first-on-cnbc-cnbc-transcript-treasury-secretary-steven-mnuchin-speaks-with-cnbcs-squawk-box-today.html https://brianoflondon.me/2019/07/facebook-lied-about-the-cryptocurrency-industry-to-destroy-it/ https://www.youtube.com/watch?v=9-ZTkCNW0w8 https://www.cnbc.com/2019/07/16/i-like-bitcoin-says-house-gop-leader-mccarthy-hits-facebook-libra.html Topic 3: Crypto Exchanges https://www.bloomberg.com/news/articles/2019-07-19/u-s-regulator-probing-crypto-exchange-bitmex-over-client-trades https://twitter.com/notsofast/status/1151864421414838274?s=21 https://www.coindesk.com/ex-ceo-of-crypto-exchange-wex-arrested-in-italy https://www.coindesk.com/mt-gox-founder-hit-with-lawsuit-over-alleged-fraudulent-misrepresentation https://www.scribd.com/document/414569311/Steinmetz-Jones-v-s-McCaleb#from_embed https://www.thedailybeast.com/behind-the-biggest-bitcoin-heist-in-history-inside-the-implosion-of-mt-gox?ref=scroll Topic 3a - Update on Bitfinex vs NYAG https://ambcrypto.com/new-york-ags-court-filings-written-in-bad-faith-and-riddled-with-false-assertions-says-bitfinexs-rebuttal/ https://www.coindesk.com/bitfinex-ny-prosecutors-tether-850-million-allege https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod https://breakermag.com/crypto-capital-is-the-common-thread-between-bitfinex-quadrigacx-and-other-troubled-exchanges/ https://decrypt.co/6824/crypto-capital-follow-up-article Topic 4: Crypto & Taxes (Time Permitting) https://www.carltonfields.com/insights/publications/2019/how-state-remote-sales-and-use-tax-statutes-may-im https://twitter.com/cryptotaxgirl/status/1148370522775797760?s=21 Topic 5: Other - Time Permitting https://www.journalofaccountancy.com/news/2019/jun/virtual-currency-not-fbar-reportable-201921479.html https://www.justice.gov/usao-sdny/pr/us-attorney-announces-arrest-and-money-laundering-charges-against-dark-web-narcotics https://cryptoslate.com/chinese-court-upholds-legal-bitcoin-ownership-btc-protected-china-property-law/ Closing Moment of Zen: https://twitter.com/Horsebox_1/status/1117955111219867648 Honorable Mention: https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets Please Support via Affiliate Codes: Unlimited Trading for $9 a Month at LVL: https://lvl.co/?r=kDpHhBmS Deribit to save 10% on Trading: https://www.deribit.com/reg-3221.4686 Buy/Sell Bitcoin at Paxful: https://paxful.com/?r=or4dNEDBBQX Trading View: http://tradingview.go2cloud.org/aff_c?offer_id=2&aff_id=4905&url_id=3 TorGuard VPN 50% off code & link = tone50: https://torguard.net/aff.php?aff=3782 Ugly's Lifetime Subscription: https://uglyoldgoat.com/?rid=4xyuzu Audio Podcast: https://itunes.apple.com/us/podcast/the-tone-vays-podcast/id1390209454?mt=2 See Regulation overview in each state here: https://www.carltonfields.com/state-regulations-on-virtual-currency-and-blockchain-technologies/ Tone Vays is available for Corporate Consulting at the rate of 0.3 btc per hour. Please email Tone@protonmail.ch for additional info.
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Reminder: Bakkt is Launching Bitcoin Futures in the Coming Day

Bakkt is Finally Here That’s right, Bakkt is finally here. After months upon months of deliberation, hype, and odd regulatory setbacks, the cryptocurrency venture that has been backed by the New York Stock Exchange, Microsoft, and Starbucks is launching. Starting Monday, July 22nd, the exchange will be testing physically delivered Bitcoin futures, which will be one of the first product of its kind to be regulated in U.S. markets. It is currently unclear who will be testing the product, or in which way the contract and custody solution will be tested. But, this development marks a huge step in the right direction for the cryptocurrency market. Bakkt confirmed the launch date for its testing period at a recent summit that was held in the New York Stock Exchange, whose chief executive is wed to the head of Bakkt. Per first-hand recounts of those in attendance, the cryptocurrency startup has also confirmed that it will be fully launching its Bitcoin futures product by the end of Q3, should nothing go wrong during testing of course. A Catalyst for Bitcoin & Crypto Growth In a recent Fundstrat Global Advisors research note posted to Twitter, Sam Doctor of the market research firm explained his thoughts on the conference. Citing the buzz being emanated by the over 150 investors and institutions in attendance, Doctor argues that there is “institutional anticipation” for the exchange’s Bitcoin futures. He expounded: “As we have written before, Bakkt tackles many of the barriers to adoption for traditional investors seeking to expand their mandate to include crypto.” Doctor adds that “appears to be a critical mass of adopters ready to come on board on Day 1 of the Bakkt launch”, noting that the firm’s sales team is starting to ramp up discussions with everyone from brokers and market makers. He thus confirms that should the hype translate into actual investment, the long-expected launch of the Bitcoin product, which will give many institutions their first taste of so-called “physical” BTC, could be a “huge” catalyst for the growth of this already budding market. Institutions Are Buzzing Per Placeholder’s Chris Burniske, the venture capitalist author of industry primer “Crypto Asset”, the overall feel of the room was rather bullish. He wrote the following, making the case that Wall Street has its eye on the cryptocurrency space once again. All in all, the @Bakkt event signals great things for #bitcoin and #crypto at large, even if I did miss some of the funk of OG days.— Chris Burniske (@cburniske) July 18, 2019 Title Image Courtesy of Samson Creative Via Unsplash The post Reminder: Bakkt is Launching Bitcoin Futures in the Coming Day appeared first on Ethereum World News.
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