It is no longer news that the spate of fraud in the cryptocurrency industry has risen to an unacceptable level. Since the emergence of the know-your-customer (KYC) policy in the banking industry, money laundering activities has reduced drastically therein. Unfortunately, perpetrators of the crime have resorted to virtual currency platforms where transactions are shrouded in secrecy.
Now FATF (Financial Action Task Force) has come up with certain guidelines on cryptocurrency exchanges within its 37 member countries. While some people feel that it is long overdue, players in the industry feel the guidelines are counterproductive. To them, it has become a case of throwing the baby away with the bathwater. So, this article summarizes the seemingly disturbing guidelines.
As mentioned earlier, virtual asset service providers (VASPs) now have only 12 months to comply with the guidelines. Although FATF presents them as recommendations, member country that does not comply with them after 12 months may be blacklisted. So, what exactly are the guidelines that have been generating a lot of ripples in the industry? They have been outlined below.
Some of the FATF recommendations
1.For every exchange, the VASP of the originator (sender) must capture some information about the sender and give them to the recipient’s VASP and vice-versa. To simplify it, if Michael sends some money to Mary in virtual currencies, the VASP through which Michael sent the money must send his information to Mary’s virtual asset provider and also receive the same information about Mary too.
The information required includes:
- Originator’s name.
- Originator’s account details (virtual asset wallet)
- Originator’s physical address
- His national identity number (customer identity number is accepted as an alternative for this)
- His date of birth and place of birth
- The beneficiary’s name
- The beneficiary’s account details
2.Every VASP must be licensed or registered within their country or jurisdiction and all VASPs must be regulated. In addition, before the ownership of any VASP changes, the regulator must approve it. VASPs are empowered to freeze funds or decline the transaction of anybody who is on any sanction list.
3.VASPs should also take necessary steps to reduce fraud and money laundering activities. Most importantly, they should also take measures to prevent virtual currencies from reaching the hands of terrorists.
Pros of the new FATF guidelines
- Compliance to the guidelines will breed a lot of transparency.
- It will reduce terrorist activities.
- Fraudulent ICOs will reduce
- Cases of extortionists seeking payment through digital currencies will reduce.
- Money laundering and fraud perpetrated through the platforms will also reduce.
Cons of the guidelines
- Compliance will slow down transaction time.
- It can affect the value of the currencies as many players may pull out.
- The guidelines are difficult to implement since blockchain, the foundation technology, is designed for anonymity.
Your perception of the recommendations depends on which side you belong. If you are a VASP, you won’t like it but if you are just an investor, you’ll hail the guidelines. More so, if you have been defrauded of your hard earned virtual currencies, you’ll agree with FATF on the guidelines. Overall, they are meant for the greater good of the entire society. Change can sometimes be difficult but with time VASPs will adjust to the guidelines.