Babbitt column 丨 G20 began to implement a unified encryption asset standard
As the G20 summit approaches, member states have been discussing how to implement standards set by intergovernmental organizations such as the Financial Action Task Force (FATF). Although there may be some challenges in complying with these standards, the ECB stated that the risks posed by crypto assets to financial stability in the Eurozone are manageable.
G20 implements global standards
The G20 countries reaffirmed their support to the Financial Action Task Force (FATF) as a global standard setting body in areas such as anti-money laundering. They also agreed to abide by the recommendations of the Financial Action Task Force's FATF, including those on cryptographic assets.
Earlier this month, the FATF held its annual Private Sector Consultation Forum in Austria, attended by more than 300 private sector representatives. FATF members include 36 countries and two international organizations, including the European Commission. The Financial Action Task Force, the FATF, explained:
“The focus of the discussion is on the mapping of virtual asset services and business models…and specific FATF implementation recommendations.”
In a report submitted to the G20 in April, the FATF outlined its work on cryptographic asset standards and promised to update its guidance, “continue to assist the jurisdiction and the private sector to implement a risk-based approach to standardize virtual asset services. Providers, including monitoring and monitoring them,” the report described, “This will help countries to monitor the field.” While emphasizing various risks such as money laundering, the FATF recognizes that:
“Technical innovation, including those potential virtual assets…may bring significant benefits to the financial system and the wider economy.”
Russia has problems to solve
Russia is one of the countries that have announced plans to implement the standards set by the Financial Action Task Force (FATF). Russia has not yet finalized the regulatory framework for cryptocurrencies, and President Putin initially stated that the framework must be completed by July of last year. Since no cryptocurrency regulations were introduced, the Russian President signed another order requiring its country's cryptocurrency regulations to be implemented by July of this year.
However, another delay may also be due to the State Duma Financial Markets Committee Chairman Anatoly Aksakov stated in a May 21 report that “the Digital Financial Assets Act is required by the FATF. Passed by being stuck." At the Russian stock market conference in 2019, he explained that these requirements were either implemented in the Digital Financial Assets Act or implemented in separate bills and detailed:
“The Digital Financial Assets Act has been suspended… The FATF decision requires us to resolve related issues such as Bitcoin.”
The news agency also reported Olga Skorobogatova, the first vice chairman of the Bank of Russia, indicating that the digital financial assets law could be passed at the spring meeting. She told the State Duma: "The laws on digital financial assets, crowdfunding, etc., all of these bills are in a high degree of readiness." "The colleagues of the State Duma Committee are very helpful and we hope that these laws will be available in the spring meeting. Adopted during the period.” She further emphasized that these laws “are very important to the country and will provide opportunities for the implementation of new projects.”
Japan cooperates with other G20 countries
As the host of the June G20 Summit, Japan has been actively working to implement global standards for cryptographic assets. Last week, the House of Representatives passed a cryptographic bill that included some necessary resolutions. According to the release of Impress, one of the contents is:
“We fully grasp the regulatory trend of the G20 and cooperate with countries to achieve international harmony.”
In April, local media reported that the Japanese government is preparing to provide a manual to the G20 countries to help them develop their own encryption regulations. This issue will be discussed at the June summit and will also discuss a wide range of regulatory measures related to cryptographic assets. In December last year, Japan’s top financial regulator financial services agency (FSA) issued a report stating:
“In order to manage and mitigate the risks posed by virtual assets, countries should ensure AML/CFT regulation of virtual asset service providers.”
They also need to “get permission or registration and follow effective regulatory measures to ensure compliance with the relevant measures required in the FATF Recommendations.”
South Korea wants consistency in regulation
South Korea has repeatedly announced that it will comply with uniform encryption standards. At the FSB plenary session of the Financial Stability Board in April, the progress report submitted at the G20 meeting in Japan, the vulnerability of the global financial system, and global cryptographic regulatory standards were discussed. Citing Cui Zhongku, chairman of the FSC chairman of the Financial Services Commission, said: "Regulating virtual currency requires cross-border cooperation." He stressed that each country must adhere to the international standards set by the FATF to "minimize regulatory inconsistency."
Possible challenges in the future
Blockchain analysis firm Chainalysis provided feedback to FATF on its cryptographic asset guidance in April. The company wrote: "The FATF Guide currently being drafted will have a profound impact on the cryptocurrency industry."
“There are obvious technical barriers preventing the cryptocurrency business from complying with these standards.” The company quoted “cryptocurrency was originally designed as a peer-to-peer financial system without central authority and intermediaries”, claiming that in most cases, cryptocurrency The exchange “cannot tell if the beneficiary is using another exchange or personal wallet” and added: “Technically, it is not feasible to transmit information identifying the parties.”
The company continued to discuss “technical opportunities” and suggested that in order to meet the FATF's objectives, “cryptocurrency exchanges can leverage the transparency of shared ledgers to form an effective risk-based approach.” They explained that the exchange should be responsible for collecting/ Store relevant customer information KYC, the originator of each transaction, and clarify that “although the transaction itself is public, the exchange should also associate its customers with specific transactions because this information is not available on the public ledger.”
Another point that the company emphasizes, what they call "unexpected consequences," is that "there is currently no infrastructure to transfer information between cryptocurrency businesses, and no one can change the way cryptocurrency blockchains work." Detailed explanation:
“Forcing heavy investment and friction against regulated companies, which are important allies of law enforcement, may reduce their penetration rate, promote decentralized and peer-to-peer exchanges, and lead financial institutions to reduce risk.”
Chainalysis pointed out that "these measures will reduce the transparency that is currently available to law enforcement agencies."
Manageable financial stability risk
The European Central Bank (ECB) monitors cryptographic assets and analyzes the potential impact on monetary policy and the risks that may be placed on market infrastructure, payments and financial system stability. The report entitled "Encrypted Assets: Impact on Financial Stability, Monetary Policy, Payments, and Market Infrastructure", published earlier this month, summarizes the analysis of its cryptographic asset working group and states:
“Currently, the impact and risk of crypto assets on financial stability, monetary policy, payments and market infrastructure in the Eurozone is limited or controllable.”
Noting that crypto assets cannot be used for currency settlement in the EU's important financial market infrastructure, the bank said, “They are not eligible for securities… [and] Central Securities Depository (CSD) cannot perform crypto-equity settlements.”
Even if the encryption-based products will be liquidated by central counterparties, they need to be authorized and meet existing regulatory requirements. The bank clarified that “even if the peak is reached in early 2018, the outstanding value of the encrypted assets is too small to be The EU financial system and the economy have an impact.” and stressed that “the development of the crypto-asset market is dynamic, and the links with the financial sector and the future economy may increase,” ECB claims:
“It is therefore important that the ECB, in cooperation with other relevant authorities, continue to monitor the phenomenon of cryptographic assets, raise awareness and prepare for any adverse situation.”
The ECB concludes that “financial institutions that invest directly or indirectly in crypto assets should implement relevant governance arrangements, and should also meet licensing standards and be commensurate with the importance of cryptographic assets or cryptographic assets-related activity investments.” Adds to the market Many factors, such as the impact of “unexpected 'legalization'” of encryption regulation, can lead to greater risk outbreaks of crypto assets.