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In a bid to block off crypto-related loopholes and address other regulatory issues, the Financial Action Task Force (FATF) proposed some recommendations for virtual assets services providers (VASPs) as well as crypto consumers. The FATF is an international organization that has been acknowledged by members of the G20 as the authority to determine proper cryptocurrency regulations.
In its draft recommendations on national anti-money laundering and know your customer (KYC) procedures, the FATF recommended that crypto exchanges should collect some vital information on both the originator of a transaction and the beneficiary as it is done in the traditional financial market. This recommendation was made to enable authorities to gain easy access to such transactions when it is needed.
While that may sound like the much needed potent cure for some of the criminal chaos running rampant in the crypto sphere, the blockchain analysis company Chainalysis has advised in a letter to the FATF that this is an impossible mission as crypto exchanges cannot send KYC information to recipient platforms on every transaction because some recipients do not possess the necessary infrastructure.
Besides that glaring fact, the Chainalysis team cited another crucial roadblock of the FATF, which is the fact that there is no way of telling whether a beneficiary uses a VASP or their own personal wallet. However, the team agrees to crypto exchanges collecting and holding KYC information.
Another FATF recommendation addressed by the Chainalysis team is the compulsory licensing of crypto consumers. The team believes licensing is exclusive to traditional businesses, and not to not every investor or trader in the crypto market. They stressed further that compelling crypto exchanges to abide by this recommendation may reduce the level of transparency that is currently available to law enforcement agencies.
Regulating the crypto space would not be an easy task and we have seen several regulatory bodies struggle to enact laws that can actually effect a good control over this new world. It just seems as though there is no one-size-fits-all in the crypto verse. While one rule may be helpful and effective in one circle, that same rule may not be as effective in the next circle.
This made it almost inevitable for regulatory bodies to come up with stiffer rules. However, these rules may end up doing more harm than good. The move to make the crypto verse less privacy-oriented may strip it of one of the three flavors that differentiate it from the traditional financial market.
In a typical crypto trade, the sender and receiver may not necessarily know themselves. In fact, tracing the transaction usually leads to a dead end. And this privacy advantage has been exploited by money launderers and other financial criminals for their illegal activities. Being untraceable, they are more likely to go unscathed with their illegal activities.
Therefore, it is crucial that different organizations such as the FATF and Chainalysis would initiate an open discussion with the aim of finding the right balance between proper regulations on the one hand and an unfettered possibilities of growth on the other.