Cryptocurrency news; regulations in the crypto market
In the last few decades, there have been numerous structural changes in the global finance market. Know your customer (KYC) and anti-money laundering (AML) are crucial steps to deter higher profile money laundering and bring illegitimate money into the finance market. Regulators are more aware of such manipulations and taking steps to mitigate such misadventure. The Wirecard scam is an interesting instance, an associate of shell companies were involved in doling out narcotics and pornography. Around $227 million was decontaminated via an Estonian subsidiary over Danske Bank; the scam was under the carpet for over nine years.
The US Securities and Exchange Commission filed a suit against Ripple Labs and two executives to rise over $1.3 million through an unregistered digital asset offering. Financial institutions and authorities bodies have learned the modus operandi of such fraudulent activities; the AML specifications have also been enhanced. These measures taken are overwhelmingly proactive, learned from past experiences. To resolve the issues of the fast-growing and evolving Blockchain ecosystem, the European Union have taken some stringent financial steps. These measures are taken to strengthen the framework sequentially to improve the licensing norms. Many EU members have started to regulate the crypto market, Germany pioneering the process.
The conventional norms applied to the forex and equity market does not align to every aspect of the crypto market or the principal nature of the Blockchain ecosystem. These tailor-made regulations clearly prescribe the course of crypto companies. The regulations clearly specify the conditions to obtain and maintain a financial license from regulatory bodies. Compliance prescribed certainly boost customers confidence and safety.
The Financial Action Task Force (FATF) is the most prominent universal organization which formulates general guidelines and articulates best practices in the anti-money laundering domain fighting terrorism financing. Although FATF is considered lenient, the body formulates sensible, pragmatic regulations for the crypto market. The most outstanding one is FATF`s Recommendation 16, more commonly known as the “travel rule”. The proposal suggests collecting and store the personal data of each participant involved in a Blockchain transaction. In theory, the data collected will allow authorities better supervision and enforcement of Blockchain regulations. Moreover, if it is implemented, the Blockchain would be transparent, which is key for the smooth functioning of any financial structure.
FATF`s Recommendation 16 impacts two types of financial transactions; conventional financial institutions (banks, credit firms, and others) and the crypto companies, coined as virtual asset service providers (VASPs). In the beginning, the travel rule was only applicable to banks, but later in 2019, it encompassed cryptocurrencies. In 2021 many FTFA members started to incorporate travel rules in their AML regulations. But this step sent shivers in the crypto ecosystem as it would destroy the essence of Blockchain technology. The service providers who did not comply with travel rules were declared non-compliant, a major hurdle for carrying out business.
The travel rule is a major interference, which does not take into account the essence of crypto technology. To obtain the data pertaining to outgoing payment, the information would have to furnish by the client, which is almost unfeasible to verify. To know more about crypto regulatory development, read Cryptocurrency news.