Financial Action Task Force (FATF), an intergovernmental organization made up of 37 countries on June 21, 2019, released its recommendations for regulating cryptocurrencies. One of the recommendations is a travel rule which requires cryptocurrency exchanges to share customer data with each other.
FATF Final Recommendations Requirements
The FATF, an organization that focuses on combating money laundering and terrorism financing has released its final recommendations for regulating cryptocurrency exchanges and it could apply to 37 countries. One of the guidelines requires a “sending” cryptocurrency exchange to share data about their customers with a “receiving or beneficiary’s” crypto exchange.
The guideline specifically outlines that an exchange must obtain and hold accurate information about a sender and beneficiary before it is sent to the beneficiary’s exchange. Also, the receiving exchange must obtain the sender’s information and accurate information about the beneficiary of its platform.
Information Cryptocurrency Exchanges Must Share
In the same vein, the required information that either exchange needs to obtain include the sender’s name, account number where such an account is used to process the transaction, and geographical address, customer identification number, national identity number, or date and place of birth. For the beneficiary, the information needed is their name and account number where such an account is used to process the transaction.
To that effect, cryptocurrency exchanges have been given until June 2020 (12 months) to adopt the new travel rule before a review is commenced. According to the FATF, terrorism and other criminal misuses of cryptocurrencies make them a serious and urgent issue that needs to be tackled.
Crypto Community Says New Rule Infringes on User Privacy
Reputable members of the cryptocurrency industry, on the other hand, have noted that the new rule will impact on user privacy instead of bringing about transparency. They advocate that it will be difficult or impossible to implement the rule and counterproductive to law enforcement goals. Chainalysis, for instance, noted that the rule will make a number of exchanges fold or drop off the face of the earth.
Despite their arguments, Steven Mnuchin, U.S. Treasury Secretary has stated that the adoption of these standards and guidelines will ensure that virtual asset service providers no longer operate in the dark shadows. Mnuchin added that it will help the fintech sector be one step “ahead of rogue regimes and sympathizers of illicit causes.”
“We will not allow cryptocurrency to become the equivalent of secret numbered accounts [and] we will allow for proper use, but we will not tolerate the continued use for illicit activities,” he said.
Guideline for Individual Using Crypto Wallets to Transfer Value
Another guideline that is part of the recommendation, is the classification of a person or firm who uses a cryptocurrency wallet to transfer value as a business, a virtual asset service provider (VASP). A VASP needs to be licensed or registered in the jurisdiction where its services are provided. However, the rule does not apply if they are only using the asset to make payments for goods and services or make “a one-off exchange or transfer.”
The FATF has made suggestions on how these guidelines can be enforced. One of such ways is the use of open-source information and web-scraping tools to spot out unlicensed operations that are advertising their business. Countries can also rely on information from reporting institutions, public feedback, and law enforcement reports.
It is, however, worthy to note that these guidelines do not automatically mean that they are now part of the laws of the 37 countries even though there could be consequences if a country does not draft regulations and laws to align with the recommendations. For starters, the country can get blacklisted which could affect its foreign trade.