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New reports suggest crypto exchanges are under more scrutiny from regulatory bodies and could be shifting their rules in the near future.
Bitcoin and other altcoins have grown widely popular, mainly due to their ability to evade tight government oversight applied over traditional financial systems. This has led the Financial Action Task Force (FATF), a multi-government effort that creates recommendations for battling money laundering and financing of terrorism which is followed by about 200 countries including the US, to issue a new note and clarify how the participating nations should manage virtual assets.
On June 21, 2018, FATF spokeswoman Alexandra Wijmenga-Daniel said in an email that the new rules would apply to crypto exchanges and businesses working with tokens and cryptocurrencies.
The direction many players in the crypto world now take solely depends on how the announced rules regarding traditional bank wire transfer regulation will be deduced and enforced by country-specific regulators.
Eric Turner, director of research at crypto research firm Messari Inc., said in an email that these new rules are “one of the biggest threats to crypto today.” He added that the actions of the FATF could have a much greater impact than the SEC or any other regulator has had thus far.
The guidelines will essentially necessitate companies such as Coinbase and Kraken along with asset manager Fidelity Investments to collect information about customers initiating transactions of above $1,000 or EUR 1,000 including details about the recipient of the funds. The crypto exchanges will then need to send the data to the recipient’s service provider along with each transaction.
How difficult will this be?
Attempts to regulate cryptocurrencies have been challenging so far as wallet addresses on digital ledgers supporting cryptocurrencies are mainly anonymous. So an exchange currently has no absolute way of knowing who the recipient of the funds is.
Addressing the issue of compliance with the proposed regulation, John Roth, who is the chief compliance and ethics officer at the Seattle-based exchange Bittrex, sounded skeptical. He stated;
“It’s either going to require a complete and fundamental restructuring of blockchain technology, or it’s going to require a global parallel system to be sort of constructed among the 200 or so exchanges in the world. You can imagine the difficulties in trying to build something like that.’’
Meanwhile, reports in the various altcoin news sources state that several US exchanges are planning on setting up such a system. Mary Beth Buchanan, who is the general counsel at the San Francisco-based exchange Kraken, recently reiterated the need for development in enhanced technology to manage cryptocurrencies. She stated,
“There’s not a technological solution that would allow us to comply fully. We are working with international exchanges to try to come up with a solution.”
What to expect
Some participants are optimistic and hopeful that increased oversight could bring about more institutional acceptance of crypto. However, many crypto businesses will face high compliance costs, while some non-compliant businesses could be forced to shut down.
Additionally, US exchanges may lose customers, as instead of trading through an exchange or a different virtual-asset service provider (VASP), many will prefer to conduct person-to-person transactions. This would eventually result in less transparency for law enforcement.