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Financial Action Task Force’s Next Step Towards Crypto Regulation Due 21st June

Financial Action Task Force Next Step Towards Crypto Regulation Due 21st June

Some further clarity for regulation in the cryptocurrency could be the result of the Financial Action Task Force’s (FATF) next publication scheduled for 21 June.

The regulations, targeting cryptocurrency exchanges, custodians, wallets and cryptocurrency-related businesses, are continually being monitored by the FATF, but this next publication has some virtual asset service providers wondering what to expect.

The objectives of the inter-governmental FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. Such is the nature of the debate surrounding whether cryptocurrency should or should not be allowed to become embedded in the global financial environment, many task forces are currently examining where to go next when it comes to regulation.

Recently the Swiss-based FSB’s “Crypto-assets work underway, regulatory approaches and potential gaps report,” urged the G20 to keep the question of more coordination between international financial standard setters under review. The issue which most other groups tasked with cryptocurrency regulation are coming across is that members hold quite different views about how to move forward with cryptocurrency regulation.

One industry leader, exchange giant Coinbase, is keen to see the outcome of the 21 June announcement. Coinbase chief compliance officer Jeff Horowitz is hoping for a measured approach as he feels that heavy-handedness by the FATF may be a counterproductive measure. He argues:

“Applying bank regulations to this industry could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement,” adding “The FATF really needs to consider the many unintended consequences of applying this specific rule to VASPs.”

Coinbase will not be alone in awaiting to examine what the next step in the regulatory process offers the industry on June 21.

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Financial Stability Board Assesses Crypto Regulations Pre-Osaka G20

crypto, regulations, G20,

The Financial Stability Board (FSB) and other international financial standard setters are currently working on a variety of crypto-assets issues and risks with the next G20 just around the corner.

The Swiss-based FSB released their own take on what direction to take prior to the G20 named “Crypto-assets Work underway, regulatory approaches and potential gaps.” This report highlighted some of the problems going forward, urging the G20 to keep the question of more coordination between international financial standard setters under review; one issue which most other groups tasked with cryptocurrency regulation are coming across is members holding quite different views about how to move forward.

Although the breakdown in trade talks between US President Donald Trump and Chinese President Xi Jinping is sure to dominate the Osaka G20, all international financial standard agencies are sure to want to break new ground and push cryptocurrency legislation further towards some kind of agreeable fait accompli between all G20 members. The FSB report also indicated another “potential gap” as that of definition, something that the SEC is still struggling to conclude on:

“Certain crypto-assets may not perform the economic functions of traditional securities and may be used primarily as a means of payment or exchange. In some jurisdictions, these assets may not legally qualify as securities or derivatives or be covered by market regulation. Issues such as market transparency, client asset custody or segregation, and fundraising documents (among others) may therefore not always be subject to detailed regulation.”

As a precursor to the summit in Osaka, Japan on 28 June, the 36 member countries of another body, the Financial Action Task Force (FATF) which includes the powerful European Commission, held its annual Private Sector Consultative Forum in Austria earlier this month in order to also find some common ground on cryptocurrency.

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G20 Crypto Report: Preserve Benefits of Innovation, Contain Risk

The G20 Financial Stability Board (FSB) is rarely upbeat when it comes to cryptocurrency and its latest report won’t disappoint, although there are indications that the regulatory board is beginning to accept that crypto is here to stay.

It states that its observations are primarily based on a “monitoring framework… predominantly based on public data” and it would be interesting to uncover exactly where this data is gathered.

The usual risks to financial stability in that crypto lacks sovereign currency “attributes” and concerns about digital currencies’ price volatility are all to be found in the report, with little reference to their benefits. It also refers to a lack of regulation due to the range of jurisdictions in which cryptocurrency exchanges operate.

The FSB is formed by an amalgamation of 68 finance departments and central banks of the G20 and chaired by Bank of England’s head Mark Varney who has expressed his concerns about cryptocurrency on more than one occasion.

The G20 financial watchdog noted in its July report that previous analysis of crypto-asset markets, which included initial coin offerings (ICOs), had brought forth awareness surrounding significant challenges such as rapid market development, lack of transparency (with regard to identity and location if token issuers), as well as governing laws for white papers and gaps in data.

This latest report has upgraded some of these concerns from early in the year calling for “vigilant monitoring” suggesting that institutionalized cryptocurrency may erode confidence in financial institutions; a clear concern being shown that banks fear an alternative option for their customers. This may not be imminent, but a likelihood that this becomes the status quo in future years is bound to concern major banking institutions around the globe, as represented by the G20 body.

However, it appears there is some consensus from within the group about the value of innovation, if not the benefits of crypto, although this may be limited to the respect currently being shown for the rising swathe of DLT in the fintech space and elsewhere. The report stated:

“FSB members have to date taken a wide variety of domestic supervisory, regulatory, and enforcement actions related to crypto-assets. These actions are balanced between preserving the benefits of innovation and containing various risks, especially those for consumer and investor protection and market integrity.”

The report also goes on to refer to the widespread use of crypto as a payment system but plays down the level of its impact in the financial and commercial sector by using the word “some”, perhaps unaware of crypto’s growing stature as a payment system:

“Importantly, crypto-assets are neither backed by any government or other authority nor are they legal tender in any jurisdiction. However, some private enterprises and some public sector entities have chosen to accept some crypto-assets as payment.”

 

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