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Taiwan Tightens AML Legislation to Remove Crypto Anonymity

Taiwan has amended its AML legislation to incorporate cryptocurrency transactions into state law.

Pro crypto congressman Jason Hsu proposed the amendment to the country’s Money Laundering Control Act last month in a bid to make cryptocurrencies face the same legal recourse as traditional financial instruments, in addition to several added rules specific to cryptocurrency. Hsu’s hope was that by providing a solid legal framework, investors will be encouraged into the market, while the new regulations could help inform citizens on the emerging technology.

Now that the new law has been passed, Taiwan’s Financial Supervisory Commission (FSC) can place the onus on exchanges to conduct their own vetting and verification processes, which will now require users to use their own names and not hide behind an alias. This means that banks could now put pressure on exchanges for not observing AML and KYC guidelines.

Cryptocurrency exchanges can now expect to receive fines for non-compliance to accompany the new rules. Non- financial institutions can expect fines from between USD 7,300 and USD 145,000, while financial institutions will receive much more significant penalties for non-compliance from between USD 73,000 and USD 1.45 million.

The FSC had amended the original AML legislation in 2016 but it is thought that the changes had made no significant impact on financial crime. The Ministry of Justice sees the new rules as far more in keeping with international standards.

In response, a spokesperson from cryptocurrency exchange BitoEX said the anonymity was only relevant in cases of cryptocurrency-to-cryptocurrency transactions. Any transactions involving fiat had always required the user’s full details and correct name.

Earlier this year, banks in Taiwan ordered the FSC to identify bank accounts offered to Bitcoin trading platforms as “high-risk clients”, requiring transactions through the accounts above a certain threshold to be flagged to the regulator.

The FSC has revealed that it also intends to implement new ICO regulations by June 2019.

 

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Crypto Faces Global AML Regulations by June 2019, Says Watchdog

The international watchdog focused on anti-money laundering (AML) regulations has said it plans to institute a global framework for cryptocurrency beginning in June next year.

As Reuters reports, the Paris-based Financial Action Task Force (FATF) has taken a significant step forward in the process of regulating the famously unregulated market of digital currencies with its announcement this week.

FATF detailed plans to begin publishing rules that would set a standard for all cryptocurrency transactions, noting that global jurisdictions would be required to enforce certain licensing schemes or compliance checks on exchanges, financial service providers for initial coin offerings (ICO), and potentially digital currency wallet providers.

Marshall Billingslea, FATF’s president, was responsible for setting the early summer date for action next year following discussions this week between officials from 204 global jurisdictions.

The upcoming regulations come with a warning: any non-compliant countries will be put on FATF’s blacklist, meaning they will suffer from restricted access to the global financial system.

A statement released by the watchdog on Friday reads: “there is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism.”

A lack of global cooperation on cryptocurrency regulations until now has led to entirely different approaches being adopted by national governments, bringing uncertainty to crypto firms looking to expand their operations.

Countries have failed to agree on how best to manage the price volatility of the cryptocurrency market, and have been skeptical of wallets’ and exchanges’ inability to protect peoples’ investments on their platforms from hacks and ensuing theft.

During the G20 Summit earlier this year, leaders expressed a desire to expand existing international AML onto the cryptocurrency industry.

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Crypto on the Rock: Gibraltar Gets Its First Regulated Exchange

The tiny British Overseas Territory of Gibraltar located at the southern tip of the Iberian Peninsula is to get its first fully licensed exchange, Coinfloor.

Coinfloor, the UK’s oldest crypto exchange is the first to be fully accredited as a “distributed ledger technology (DLT) provider” under the legislation which requires the government to satisfy itself that 9 operating principles of good practice are being adhered to.

Obi Nwosu, the CEO of Coinfloor, commented that these were all met by his company, including those which guarantee adequate AML and KYC safeguards and security against the risk of cyber attack. He said:

“What impressed us was that this [legislation] was in the works for a long time… It’s been well thought out, well considered. They are focusing in on quality over quantity.”

Gibraltar, known affectionately as “The Rock” among residents and visitors, and home to the only Barbary macaques living in Europe, has begun attracting new and existing fintech companies to its shores. It is attempting to follow in the footsteps of other European countries such as Malta and Switzerland, both of which have seen the arrival of major cryptocurrency players like Binance and Bitmain in 2018. It now holds regular events such as the Gibraltar International Fintech Forum, demonstrating the country’s serious intent when it comes to encouraging fintech companies to do business there.

Coinfloor’s CEO said that he was glad to be able to fulfil the requirements of the new legislation, thereby securing a position in Gibraltar’s blockchain and cryptocurrency ecosystem, particularly as the UK exchange had recently been forced to lay off employees due to weakening demand in the UK through Bitcoin’s fall from its 2017 highs. He argued:

“It’s never desirable to make these changes, but it’s a natural part of the market cycle… The market has contracted and you should make appropriate changes to your team . . . It’s happening across this space.”

Despite some companies looking to Gibraltar as a possible home, it is more likely that Malta, with its vibrant crypto community and favourable blockchain legislation, will be become a favourite with established exchanges and startups, particularly given the ongoing concerns regarding a no deal Brexit.

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Taiwan Congressman Proposes Extension of AML Laws to Include Crypto

A lawmaker in Taiwan hopes to change local regulations in order to cover cryptocurrencies under the existing anti-money laundering (AML) framework.

A press release shared with Coindesk news shows that Taiwan’s colloquially know ”crypto congressman” Jason Hsu has proposed an amendment to the country’s Money Laundering Control Act that would make cryptocurrencies face the same legal recourse as traditional financial instruments, in addition to several added rules specific to cryptocurrency.

His policy proposal would streamline Taiwan’s laws with the EU’s own Anti-Money Laundering Directive.

Should the law pass, the onus would be on local cryptocurrency exchanges to prevent money laundering from taking place on their platforms. On the part of cryptocurrency exchanges, they will be required to keep transaction records and report anything suspicious to officials in order to maintain this new degree of responsibility.

”All those involved should have the responsibilities to take care of this budding ecosystem,” Hsu is quoted in the press release, Coindesk reports.

Rather than pushing an anti-crypto narrative, however, Hsu hopes that by providing a solid legal framework, investors will be encouraged into the market, while the new regulations could help inform citizens on the emerging technology. He has said it is an effort to support the development of blockchain technology and cryptocurrencies, rather than stifle their innovations.

However, Hsu sees a limit to the degree of government control there should be over the industry, and supports self-regulation to a certain extent.

Blockchain banking

Earlier this year, Taipei bank Fubon Commercial became the first of its kind in Taiwan to introduce a blockchain based payment system.

The new system is being used for restaurants and merchants serving the National Chengchi University, with Fubon Commercial saying transaction times may be cut to less than a second.

Taipei has plans to become a ”smart city” and blockchain is looking to be a key fixture in this move.

 

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Deloitte: 5 Hurdles for Blockchain to Enter Mainstream

Blockchain adoption barriers can be lowered significantly if five “key issues” can be addressed, according to an article published by Deloitte.

Barriers

Published on 28 September, the article titled “Blockchain and the five vectors of progress” takes a deep dive into the many issues that are stifling mass adoption of the technology. In order for progress to be made, the article recommends three areas that will “enhance technical feasibility” and two others which call for greater regulatory support and an increase of organizations formed by blockchain enterprises.

Other reports and studies from the global auditing and consulting firm have appeared rather bullish on blockchain, suggesting that businesses that do not adopt and implement the technology will be at risk of falling behind.

Furthermore, a survey that was recently conducted by Deloitte highlighted positive sentiments held by industries across the globe; it found that a vast majority of participants believed that mainstream adoption will come to fruition in the not-so-distant future.

The article somewhat counters these findings by referencing a 2018 Gartner CIO survey which found that 1% of respondent CIOs had managed to “indicate any kind of blockchain adoption”, with another 8% working on either a pilot or were in short-term planning phases.

Speed

It goes on to argue that blockchain-based systems as a transaction medium are still too slow with the number one network, Bitcoin, only able to manage up to seven transactions per second and the second largest, Ethereum, around 15.

However, massive improvements have been made, with IBM managing to run 3,500 transactions per second on the Hyperledger Fabric blockchain platform. Furthermore, the article highlights the push to evolve consensus mechanisms as a sign of distinct progress.

Standards

Next up is standardization; for any business without blockchain coders and developers on staff, adopting the technology is expensive and time-consuming. This is due to the overflowing number of blockchain projects that are utilizing multiple coding languages, mechanisms and protocols.

Should there be a standard in place, the field will somewhat be leveled and an increase in industry-level participants will be further made possible. The report makes note of the Enterprise Ethereum Alliance (EEA), who are currently working to create a standard Ethereum network software for business.

As the number of participants in the blockchain race grows, it is thought that standardization will prove valuable to collaborations, sharing of blockchain solutions, smoother integration with existing blockchains and cross-blockchain transactions among many others.

Low-cost ease of access

Blockchain solutions are complex and costly, not only to create but also to implement.

Naturally, unintuitive new technologies can ward off even the most open-minded of skeptics, though this is also changing rapidly in the face of industrial giants such as Amazon and IBM launching affordable cloud-based technology as-a-service solutions.

These new services enable companies to dramatically reduce the barriers with blockchain templates, which allow for the simple setup of a “basic blockchain infrastructure”. Ease of development is also on the list of issues presently being conquered with new tools being created by companies such as Google.

Legally sound

Regulation has been one of the hottest topics surrounding the nascent technology in 2018. Countries such as Malta, South Korea, and Switzerland are tipped as the jurisdictions that are leading the regulatory race, with Malta miles ahead of the closest competitor.

Deloitte agrees that regulation is absolutely vital to the future success of blockchain, creating appropriate classifications for cryptocurrencies, defining smart contracts as well as Anti-Money Laundering (AML) and Know-Your-Customer (KYC) policies being high on the order list.

The formation of “blockchain consortia” is the final vector listed as part of the Deloitte’s five critical issue areas; groups of collaborating companies who band together to promote the advancement of the technology can be a powerful catalyst for its adoption.

Like the EEA, they can establish new standards for the tech, lobby governments, develop infrastructure, educate, advise and do much more to speed up progressions with the aforementioned vectors listed.

Conclusively, the article writes:

“It’’s understandable why, despite promising pilots and experiments, executives might wonder when — and even whether — blockchain will be ready for mass adoption. But progress along these vectors is bringing the technology closer to its breakout moment every day.”

 

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Winklevoss Twins and Gemini Glimpse Crypto Horizon in UK

Gemini and the Winklevoss twins are looking ahead to the UK as their next lucrative cryptocurrency landscape.

The entrepreneurial crypto brothers, having recently been knocked back by the SEC after their own ETF submission was turned down, have at least have received some recent success in getting a rubber stamp from the NY regulators for the company’s new stablecoin. Two firms, Gemini Trust Company, and the Paxos Trust Company are the first stablecoin providers to receive the go-ahead to list on exchanges in New York State.

Now it appears that the brothers are “crossing the pond” with their latest venture. Those close to the company have reported that Gemini has already taken the step to hire consultants to advise on an approach to move into the UK. London is currently the European financial epicenter, although many companies are now awaiting the final outcome of Brexit talks, and some have even already moved from London to Germany and France in anticipation of a negative result in which no deal between the UK and Brussels is reached.

This has clearly done little to dissuade Gemini as it plans to file an application with the UK’s equivalent of the SEC, the Financial Conduct Authority (FCA), according to the Financial Times.

If a move does materialize, Gemini’s made competitor will become San Francisco-based exchange giant Coinbase who are now well established in the UK as the main provider of crypto-related services to UK residents. Coinbase has recently expanded the offerings on its UK platform, enabling easier withdrawals from UK Coinbase sterling accounts to English banks and forming a partnership with major English bank, Barclays, to simplify its platform for users.

The UK market is still being monitored by the FCA but there have been recent calls for tighter regulatory measures called for by MPs. The FCA has recently asserted that it would not “rule out roles for crypto-assets themselves”, an approach far from calling for a ban or restriction on trading operations. However, the situation is ongoing without any real decisions taken as yet by the Crypto-Assets Task Force set up earlier this year in May.

The most recent noises out of Westminster concerning cryptocurrencies is that MPs want the FCA to look at digital currencies “as a matter of urgency”, suggesting that no new asset class is structured around the technology but that EU AML laws are enforced along with KYC checks.

The Gemini move may offer challenges in a vibrant and lucrative UK market, but the benefits may be worth the risks. The UK experiment has certainly worked for Coinbase who now plan to move into Ireland. Gemini is currently 61st in global rankings.

 

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Swiss Bankers Act to Correct Anti-Crypto Bias

The Swiss Bankers Association (SBA) have stepped in an attempt to curb banks in that country from rejecting financial services to cryptocurrency-related companies.

The SBA is an organization which claims that it aims to achieve the best possible operating conditions for banks in Switzerland and is the umbrella organization of the Swiss financial center. Its stated primary objective is to create optimal framework conditions for Swiss banks.

The SBA has released a new set of guidelines to banks to create a more cooperative environment in view of many banks’ reluctance to do business in the crypto sector. Earlier this year, the financial director of Zug called for the SBA to make it easier for blockchain companies to meet their banking needs.

Director Heinz Tannlerand, together with financial director of Zurich Ernst Stocker, suggested then that if some of the complexities weren’t removed for Swiss-based blockchain companies wanting to open bank accounts, there would be a strong likelihood that firms will look to do business elsewhere, in countries which have more crypto-friendly banking systems.

Adrian Schatzmann, strategic adviser of the SBA, stated: “We believe that with these guidelines, we’ll be able to establish a basis for discussion between banks and innovative startups, making the dialogue simpler and facilitating the opening of accounts.”

New suggestions by the SBA, aimed at ICOs, calls for separate AML procedures for both fiat and crypto fundraisers. Oliver Bussman of the Crypto Valley Association suggests that “this provides more clarity not only to banks but also to startups”.

This suggestion should help to alleviate the concerns of many banks who expressly targeted the AML as their principal concern in dealing with companies offering ICOs. Reuters recently cited sources in the banking community who maintained that “banks are worried because some of the companies that carried out ICOs did not do AML checks on their contributors, meaning the banks themselves could fall foul of AML rules”.

Bussmann estimates that 530 crypto and DLT companies have set up shop in Zurich and Zug. One reason for Switzerland’s success as a center for blockchain and fintech, according to Swiss law firm MME, is the country’s openness to new business concepts and innovation. Marin Eckert MME partner said, “Swiss regulators are among the few that really have a deep understanding of the technology and how it works.”

 

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US Defense Expert Slams Crypto For Jihads Rhetoric

In the US, a senior member of the Foundation for Defence of Democracies Centre on Sanctions and Illicit Finance has spoken out against anti-crypto rhetoric, particularly those aimed at the financing of Jihads.

A senior member of the center, Yaya Fanusie maintains that despite continual references by governments around the world that cryptocurrency finances terrorist activity, terrorist networks have been mainly unsuccessful in using cryptocurrency to fund their activities.

He recently suggested in a congressional testimony, that cash is still king in the underworld; particularly in the zones that Jihadists operate in, mainly being locations where high tech hasn’t reached or is unavailable. He maintains that, though the nature of Bitcoin may seem suited to illegal activity amongst the groups such as Al Qaeda, ISIS, and Boko Haram, they continue to use cash to fund their jihads.

Forbes writer Ted Knutson reveals that the Center for a New American Security (CNAS) declared that the use of Bitcoin in terrorist activities between 2015 and 2017 amounted to only about eight bitcoins. The CNAS report released last year revealed that it was purely an anecdotal evidence which continues to back up politicians’ fears of terrorist financing through Bitcoin and other cryptocurrencies. It suggested that attempting to convert fiat to bitcoin may create logistical and security problems of their own for would-be Jihadists.

New legislation and regulation around tightening KYC and AML laws have made the terrorists job even harder with less opportunity to get their bitcoins to where they want them. More sophisticated tracking by exchanges and law enforcement makes any illegal activity even more challenging.

Drug Enforcement Agency (DEA) agent Lilita Infante says that 10% of Bitcoin transactions are associated with illegal activity. This is down from 90% of Bitcoin transactions being used for crime in 2013.

Legitimate Bitcoin trading, investing, and use for goods and services has increased dramatically and is outpacing the use of Bitcoin for illegal activity, even though overall, there is much more money being transacted with Bitcoin for illegal activities now than in 2013.

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EU Terrorist Funding Study: Crypto No Greater Threat Than Traditional Currency, Increased Regulations Required

In a study published Monday, the EU parliamentary think tank has concluded that cryptocurrencies present no more of a threat to terrorist financing than fiat currencies, while improved regulations, industry intelligence, and community relationship building offer the strongest policy actions to combat the threat.

The report was commissioned by the European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs, conducted to asses the risks imposed by the rapidly changing, decentralized space of virtual currencies.

Crypto risks no greater than traditional methods

The paper acknowledges that the cryptocurrency space does not represent a more significant threat than the ‘traditional’ forms of terrorist financing. ”In their current form and at current levels of adoption, [virtual currencies] may not present terrorist actors with substantial advantages over other methods of funding and financing they already utilize,” it reads.

In addition to this, the research notes that there are very few publicly-documented, confirmed cases of virtual currencies being used in regards to terrorist funding. With the recently imposed EU GDPR and AML (anti-money laundering) regulations, these risks posed by cryptocurrency usage are only decreased further.

The threat of crypto-funded terrorism

However, the study highlights the borderless, peer-to-peer (p2p) nature of cryptocurrency trading as offering prospective terrorist actors a platform to transfer funds out of the regulated sector, and beyond the purview of counter-terrorist financing authorities. Dependent on the virtual currency being traded, various levels of anonymity and pseudonymity are offered, making it appealing for those looking to conduct illicit activities.

Several incidents are pointed to, demonstrating that both politically and religiously inspired extremist actors have utilized virtual currencies in the past, although in a ”relatively low-volume and unsystematic fashion.” The research suggests that the nature and scale of the threat are difficult to predict, although potential terrorists may be looking to expand the use of cryptocurrencies in their illicit activities.

Potential illegal activities that these actors could utilize are detailed, notably including soliciting donations in crowdfunding campaigns conducted on social media, as well as transmitting funds internationally among members of terrorist networks using P2P value transfers.

Increased regulation required

To target these threats, the study offers a list of EU policy recommendations, including ensuring comprehensive directives are applied. Particularly emphasized is a need to implement regulations that are relevant and adaptable to the rapidly-evolving technologies behind cryptocurrencies in a way that does not stifle their innovation.

A need to address both established cryptocurrencies such as Bitcoin and altcoins differently is noted: ”Regulators should also draft guidance that takes a nuanced approach to characterizing the risks [virtual currencies] pose in different contexts and for different purposes. For example, the illicit finance risks the traceable cryptocurrencies such as Bitcoin present is generally not as significant as that presented by privacy-focused alt-coins.”

Community-driven industry intelligence

Developing law enforcement knowledge and capacity is also focused on as a key point to countering the usage of cryptocurrencies in terrorist financing. Interestingly, the paper places a significance on the positive potential outcomes of reaching out to the established cryptocurrency community in order to better their industry intelligence.

”The public sector cannot develop effective regulation, enhance knowledge and improve intelligence acting alone. Cooperation and interaction with businesses in the VC-industry is essential… Member States should develop dedicated fora for sharing information with local VC industry participants, including sharing of intelligence for operational purposes,” the research notes.

A lack of industry intelligence has been the source of many issues relating to implementing cryptocurrency and blockchain regulations, so an approach such as this suggested may well prove invaluable in assisting authorities to make better-informed decisions.

Reaching out to the cryptocurrency community for their support rather than marginalize their innovations would be hugely beneficial, alongside helping improve what many see as an undeserved bad reputation when it comes to cryptocurrencies and criminal activities.

 

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