A number of countries worldwide are reportedly setting up a new cryptocurrency system to help them comply with the FATF standards. Fifteen nations are planning to create a global system “to collect and share personal data on individuals who conduct cryptocurrency transactions”, Nikkei reported on Aug. 9, noting that “the G7 members, Australia, and Singapore will develop the new system.”
Governments worldwide are changing the way they regulate crypto assets to comply with the global cryptocurrency standards set by the Financial Action Task Force (FATF).
Some are amending existing laws, while others are creating a new system to cooperate and share data.
A New Crypto System
The G7 members are France, Japan, Canada, Italy, Germany, the U.K., and the U.S.
The system will be designed by the FATF with the goal “to draw up detailed measures by 2020, and to have the system up and running a few years later”, the publication elaborated:
Once in place, the system would be managed by the private sector.
The FATF published its final guidance for a risk-based approach to crypto assets and service providers in June. It was discussed at the G20 summit in Japan where leaders of the G20 nations and their finance ministers declared their commitments to following the FATF standards.
The FATF is an intergovernmental organization founded to develop policies for combating money laundering. It currently comprises 37 member jurisdictions and 2 regional organizations. After releasing its guidance, the FATF announced its plans to monitor how countries apply the recommended standards. The organization declared in June:
The FATF will monitor implementation of the new requirements by countries and service providers and conduct a 12-month review in June 2020.
While the FATF emphasized that its “guidance is non-binding and does not overrule the purview of national authorities”, countries that do not comply risk being blacklisted.
At the closing of the FATF plenary in June, U.S. Secretary of the Treasury Steven T. Mnuchin explained that among the recommendations are the requirements for crypto service providers to “identify who they are sending funds on behalf of, and who is the recipient of those funds” and “develop processes where they are required to share that information with other providers of virtual assets, and law enforcement.” He remarked:
Under these new measures, virtual asset service providers will be required to implement the same AML/CFT requirements as traditional financial institutions.
Licensing Service Providers
In its guidance, the FATF stated that countries are obligated to “assess and mitigate their risks associated with virtual asset activities and service providers”, including to “license or register service providers and subject them to supervision or monitoring by competent national authorities.”
Several countries already require crypto service providers to be licensed by their financial authorities, such as Japan where crypto exchanges must register with the Financial Services Agency. So far 19 exchanges have been registered and at least 110 more have expressed interest in registering, the agency told news.Bitcoin.com.
Some countries without any crypto licensing regime are considering implementing one to comply with FATF’s standards. South Korea, for example, is one such country. Its “Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC) has disclosed a plan to directly regulate cryptocurrency exchanges and bring them into the regulatory system”, Business Korea reported on Aug. 7. “Currently, the FIU indirectly controls cryptocurrency exchanges through administrative guidance to banks.”
An FIU official explained that a cryptocurrency exchange licensing system will be introduced, as recommended by the FATF. The news outlet detailed that the South Korean financial authorities are planning to revise the Act on Specified Financial Transaction Information this year “to strengthen crypto exchanges’ duty to prevent money laundering.”
A major distinction between how South Korea regulates crypto assets compared to most other countries is its real-name system. The government set up this system in January last year to reduce the risk associated with anonymity of crypto transactions, including money laundering. Any crypto exchange user wanting to withdraw or deposit Korean won must open a real-name-verified account at the bank providing this service to the exchange. However, banks are currently only providing this service to the country’s top four crypto exchanges: Bithumb, Upbit, Coinone, and Korbit.
Noting that there are nearly 200 crypto exchanges in the country and most of them are not using the real-name system, Business Korea emphasized:
If the revised bill is passed in a plenary session, it will form the legal basis on which the government refuses to register cryptocurrency exchanges that do not use real-name accounts.
According to the publication, any exchanges not using the real-name system “will be defined as unregistered exchanges and face up to five years in prison and a maximum 50 million won ~$41,116 in fines.”
Amending AML Laws
Instead of introducing new laws, some countries have opted to take the easier route of amending their existing laws to combat money laundering involving crypto assets. Thailand, for example, recently revealed a plan to amend its AML laws for this purpose, according to local media. The country started regulating crypto assets in May last year, requiring crypto exchanges to be approved by its financial authorities.
While not a member of the FATF, Thailand is a member of the Asia/Pacific Group on Money Laundering which ensures the adoption, implementation and enforcement of certain FATF recommendations.
The Thai Anti-Money Laundering Office (Amlo) said it will amend AML laws to include cryptocurrencies, the Bangkok Post reported on Aug. 5. Amlo acting secretary-general Pol Maj Gen Preecha Charoensahayanon plans to add a section to the country’s Anti-Money Laundering Act to require crypto exchanges to report activities to his office. He explained that this change corresponds with international standards which regulate these service providers. The news outlet noted that “Amlo officers currently do not receive complaints, or deal with, cases directly involving virtual currencies, but they need to stay alert.”
The Amlo chief also revealed in July a new reporting requirement for crypto exchanges. They will be required to report digital asset transactions with a value exceeding 5 million baht (~$162,547) to commercial banks, which will then report them to Amlo.