When the G20 approved the recommendations of the Financial Action Task Force (FATF) back in late June, the group imposed a one-year deadline for local regulators to adopt new rules and regulations regarding implementation and compliance. The rules themselves have no explicit penalty provisions, but crypto exchanges are already four months into the process and having difficulty with what is called the new “travel rule”.
This rule deals specifically with the issue of anonymity in the blockchain world. It is controversial, but a necessity if the crypto revolution is to move forward with the consent of the regulatory establishment across the globe. Cointelegraph reports that the “travel rule” is a formidable hurdle:
The FATF guidelines require regulators and Virtual Asset Service Providers (VASPs) — namely, exchanges from various countries worldwide — to collect and share personal data during transactions. The recommendation imposes the same standards on the cryptocurrency sector that are normally shouldered by the banking industry.
VASPs have one year to comply, but we are already four months down and only eight more to go. Ryan Taylor, CEO of Dash Core Group, told Cointelegraph:
Thus far, it appears that exchanges are preparing to address the recommendations put forward by the FATF. However, because the FATF guidance must be implemented in local jurisdictions around the world, and those jurisdictions will undoubtedly act on the guidance differently, exchanges are struggling to understand the specific requirements they will need to meet. For now, that is a guessing game for them.
Taylor continued:
Privacy and anonymity are not binary, but rather a spectrum. Coin mixing wallets can be built for any transparent blockchain such as the implementations for Bitcoin and Dash, and those options require no changes to the transparent nature of the blockchain. […] Given the diversity of options, and the differing treatment of these options in various jurisdictions, it is clear that only some of the most anonymous implementations are at risk.
The battle for “anonymity” has finally been enjoined. Crypto purists and zealots can argue as much as they like that anonymity is a core issue of the crypto revolution, but as long as it exists without controls, the more the establishment will believe, and un-rightly so, that crypto blockchains exist only to facilitate illicit activities, related money laundering, and a host of other criminal malfeasances. This prevailing opinion among regulators, government authorities, and law enforcement officials will not go quietly into the night until the industry addresses the issue with meaningful operational changes.
The primary concern from the crypto exchange perspective is that there is no easily employed technical solution for the problem. We reported earlier this month that Binance had appointed Coinfirm, a UK-based risk and compliance platform that was founded in 2016, to deal with technology issues surrounding KYC and AML compliance. It is unclear how Confirm will perform its task, but it is busily building connections to do so.
At the end of the day, there will be a mad scramble in the exchange industry to adapt to regulatory needs with an eye on competition. Bitpanda CEO Eric Demuth concluded:
Our estimation is that smaller players are either choked out or go to the ‘dark side’ in the sense of offering services without a license. If this happens, those VASP would lose all incentives to stick to any rules and might not stop by breaking only these rules. This could lead to a situation like in the old days of Crypto, where there was more a mentality to work against the state. Currently, most VASPs try to stick to the rules.