Could stricter AML requirements spur tech development and international cooperation?

The FATF was back in the news this week, as the global regulator kicked off a 15-nation effort to build an international system to monitor crypto transactions. This follows its issuance in June of revised standards for crypto service providers to screen and share customer and transaction information for money laundering and other illicit activities, and its endorsement last month of Japan’s effort to develop a SWIFT-like network for crypto payments. This week’s announcement also follows intermittent examples we’ve seen of some crypto exchanges adopting new technology to bolster their customer verification systems based on newly-developed KYC/AML solutions designed specifically to comply with the FATF standards, particularly where banks or other entities are already implementing the FATF guidelines.

While Chainanalysis and other industry commentators previously noted the technical limitations and the lack of infrastructure required to obtain and transfer customer and transactional information among crypto companies, it seems that the market — particularly the growing number of blockchain security companies — is responding to this new demand, and FATF itself may be taking the lead to ensure the infrastructure is built to allow the crypto ecosystem to mold itself into compliance. All of which is causing us to ask: could these expanded AML requirements end up accelerating the development of industry-wide KYC standards solutions? Further, is the FATF really able to spur action and advance a coordinated approach across global regulators on a key regulatory topic?

Perhaps we are jaded from the wait-and-see regulatory approach we have faced in the U.S. as other countries forge ahead with more deliberate and coordinated regimes, while we navigate across the SEC, CFTC, FinCEN, IRS, state-specific bodies, etc. Maybe that’s why it seems hard to believe that a cross-jurisdictional regulator is actually coordinating across jurisdictions. (In theory, the U.S. Treasury Department’s Financial Stability Oversight Council, or FSOC, has this exact mandate in the U.S., but the working group set up in January 2018 has yet to make any progress as far as we can tell.)

Regardless, we at BitOoda — consistent with our philosophy and practice of strong regulatory compliance — welcome efforts to accelerate the clarification and standardization of KYC/AML rules that would allow us to further leverage our extensive industry network and facilitate a broader set of services and solutions for our clients. In our view, leveling the playing field across market participants — including in the KYC arena — is a critical step toward the full adoption and institutionalization of digital assets.

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