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There’s a lot at stake this week as crypto moves more into the global regulatory slippage.
The Financial Action Task Force (FATF), an intergovernmental anti-money laundering body (AML), completes its second annual review of member countries’ progress in implementing a crypto compliance framework. change.
It has been more than two years since the FATF recommended integrating cryptocurrency companies (virtual asset service providers, or VASPs, in FATF jargon) into its regulatory framework. This has created challenges for industry and regulators, especially in areas such as travel rule, where third-party VASPs must exchange Personally Identifiable Information (PII) about customers as well as transactions.
To further complicate matters, the regulations proposed by the FATF have been forced to expand at the pace of crypto innovation to accommodate rapidly changing areas such as decentralized finance (DeFi) and stablecoins.
Since the last plenary meeting in March 2021, when the FATF released draft guidelines, there has been an overwhelming response from the industry. In short, many in the space are concerned that regulators are taking too broad an approach, especially when it comes to things like DeFi.
Indeed, there has been such an enthusiastic response from the industry that some are predicting that the FATF will likely head to its next plenary meeting in four months, regulatory insiders told CoinDesk.
There was probably not enough time given the volume of responses to process and deliberate on them, given that the consultation ended at the end of April, said Sin Jones, senior partner at XReg. Consulting, in an interview, adding:
I think there is probably a 50/50 chance that they will not go ahead with the adoption of the guidelines in this plenary, but choose to postpone until the next plenary.
This view was echoed by Malcolm Wright, head of the AML task force at the crypto trading body Global Digital Finance.
I heard the same, that I don’t think we’ll see the revised guidelines on June 30, or every time they say plenary is over. I have a feeling it will be later. And that they take into consideration what the industry has raised, to see this properly, Wright told CoinDesk.
Unintended consequences
The response to the draft guidelines submitted by Global Digital Finance focused on the unintended consequences of the FATF wording.
The unintended consequences of trying to catch it all in DeFi means there may be people caught by regulation where it makes no sense to regulate them, Wright said. Some terms were so broad that it could be argued that even large service providers would be affected.
Wright, whose day job is compliance officer at 100x Group, which owns BitMEX, also said he doubts the FATF will produce revised and updated guidance by the end of June as the regulator is likely still busy taking into consideration all the comments of the consultation.
Malta is on the gray list
A headline related to the FATF this week has concerned Malta, which is being added to the gray list of AML watchdogs, essentially classifying the jurisdiction as high risk due to the failings of the AML.
Malta is a popular hub with crypto exchanges and service providers, with Binance saying at one point that it has chosen the island for its headquarters. There is no link yet between the Malta FATF gray list and crypto. Binance was fired from Malta in 2020.
This is not surprising given the attention paid to money laundering issues in Malta from the EU and elsewhere, Jones said. I wouldn’t necessarily think crypto is in the foreground, but unfortunately it will rank Malta as riskier and require more due diligence.
Wright pointed out that Malta was one of the first countries to provide a regulatory regime for cryptocurrency.
It’s a sane framework, and in fact some of the controls around it are very robust, Wright said. Unless the FATF says this is something specific to crypto, we have to assume that this is a broader risk-based approach.
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