Bloomberg: More than 200 countries and regions, cryptocurrency exchanges ushered in the biggest "life and death test"

The popularity of bitcoin and other cryptocurrencies has soared, in part because they provide a way to circumvent government regulation of traditional financial systems. However, please be prepared to kiss well with most autonomy now.

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On June 11th, the Financial Action Task Force on Anti-Money Laundering (FATF), a multi-government government that aims to develop anti-money laundering and terrorist financing proposals to be observed by some 200 countries, including the United States. Alexandra Wijmenga-Daniel said in an email that the FATF will issue a note clarifying how participating countries should monitor virtual assets. The new rules will apply to token and cryptocurrency businesses such as exchanges, custodians and encrypted hedge funds.

Eric Turner, research director at cryptographic research firm Messari Inc., said in an e-mail that it depends to a large extent on how national regulators will interpret and apply these long-standing traditions. Bank wire transfer business regulations, but they are "one of the biggest threats facing today's crypto assets." “The FATF's recommendations may have a much larger impact than the SEC or any other regulatory agency to date.”

These guidelines include information from clients such as Coinbase and Kraken to asset management company Fidelity Investment to collect information on customers with initial transaction amounts in excess of $1,000 or €1,000, as well as details of recipients of funds, and each of these data. The transaction is sent to the recipient's service provider.

John Roth, chief compliance and ethics chief at Bittrex, based in Seattle, said that while this sounds simple, compliance costs are high and technically difficult. Bittrex's daily trading volume is approximately $58 million. After all, the wallet address of the cryptocurrency digital book is basically anonymous, so the exchange is currently unable to know who the recipient of the money is.

Roth said:

“This either requires a comprehensive and fundamental restructuring of blockchain technology, or the need to build a global parallel system in about 200 exchanges around the world. You can imagine how hard it is to build such a thing.”

Mary Beth Buchanan, general counsel at San Francisco-based Kraken, said several exchanges in the US are discussing how to build such a system. Kraken's daily turnover is about $195 million.

Buchanan said:

“If there is no enhanced technical system, this is an example of trying to apply the rules of the 20th century to the technology of the 21st century. There is no technical solution that allows us to fully comply. We are working with the International Exchange to try to find a solution. Program."

Buchanan said the end result may be that many encryption companies will face an increase in compliance costs. Phil Liu, chief legal officer of Los Angeles-based hedge fund Arca, said that some violating companies may fail.

Liu said in an email:

"People in the encryption community may make a big deal to provide personally identifiable information to the government, but I think if the proposal is implemented, the compliance player won't get too much interference."

US exchanges may also lose customers because some exchanges may no longer trade through exchanges or other virtual asset service providers (VASPs), but instead trade directly with other exchanges to protect their privacy.

San Francisco-based Coinbase is the largest cryptocurrency exchange in the United States, and its chief compliance officer, Jeff Horowitz, said:

“I understand why the FATF wants to do this. But applying banking regulations to the cryptocurrency industry may prompt more people to conduct P2P transactions, which will reduce the transparency of enforcement. The FATF really needs to consider applying this specific rule to VASP. Many unintended consequences."

How quickly these consequences begin to manifest will depend on the various regulatory agencies. Organizations such as the Financial Industry Regulatory Authority (FINRA) are expected to vigorously implement these regulations. The Financial Crimes Enforcement Network (FinCEN) recently released an explanation guide similar to the interpretation guidelines that the FATF is considering. Some state agencies may follow suit, increasing the risk that non-compliant companies will lose their remittance licenses.

If a country does not comply with the FATF regulations and is blacklisted, “it will basically lose access to the global financial system,” said Jesse Spiro, policy director at cryptocurrency research firm Chainalysis. .

Josh Gnaizda, chief executive of CryptoFundResearch, said the proposed regulations could also affect many of the more than 500 crypto funds that have emerged over the past few years. “Following FATF-induced transaction delays or additional transaction costs may significantly reduce fund returns.”

After several rounds of talks with the encryption industry, regulators may know that compliance will take time as the encryption industry considers new technologies and processes. Some participants saw the bright side, as greater regulation could lead to more institutions accepting cryptocurrencies.

“Is this a potential difficulty? Of course, at least at the very beginning. Although this may be difficult, it seems necessary. For this industry, the road map after the past is not so difficult. ”