While the cryptocurrency market in general has spent much of the last year in the doldrums—some have even referred to it as “crypto winter”—there are signs of recovery emerging all around. A report from CoinMarketCap noted that 24-hour trading volume actually hit an all-time high back in April 2019, clearing $88.9 billion total. With increased awareness, popularity and use comes the attention of watchdog agencies, and as such, the cryptocurrency exchange market is poised to face down new standards.
The new regulations are issued by the Financial Action Task Force (FATF), and while these recommendations aren’t legally binding in and of themselves, those who fail to follow said recommendations are often shunned by the larger cryptocurrency marketplace, valued at just over $246 billion according to CoinMarketCap figures.
While many cryptocurrency exchanges already operate under Know Your Customer (KYC) rules similar to those maintained by normal financial institutions, they’re often not subject to the “travel rule,” which is a familiar one to exchanges in the United States banking system. The travel rule calls for the exchange of customer information between exchanges, a point which blockchain industry professionals are already referring “onerous” if not outright impossible.
Several industry representatives descended on Vienna, where the FATF’s consultative meeting was being held, to express concerns over these new standards. First among which was that such a move was largely unworkable with cryptocurrency, and that trying to execute such a move would actually have a contrary effect, driving users to unregulated platforms to get out from under the weight of the new standards.
Current reports suggest that these efforts may be in vain, as Sigal Mandelker—the undersecretary for Terrorism and Financial Intelligence in the US Treasury—noted that the standard was on track for publication starting in July. More specifically, Mandelker remarked “During its presidency of the FATF, the United States has worked with other countries to clarify how all countries should regulate and supervise activities and providers in the digital currency space. We anticipate that in June the FATF will adopt a final version of its Interpretative Note, along with updated guidance to further assist countries and industry with their obligations.”
Mandelker’s expressed reasoning behind the added standards was noble enough—Mandelker specifically noted that the technologies that appeal most to users in the cryptocurrency space like speed of transfers and increased anonymity also represent opportunity for “…rogue regimes and terrorists”—but dissent from within the industry was substantial.
For example, the co-founder of Paycase Financial and Shyft Network Joseph Weinberg noted that such a move would effectively force digital currencies to operate according to analog-era rules. Weinberg, who also serves as an advisor for the Organization for Economic Cooperation and Development, noted that “…cryptocurrency transactions can occur from person to person, machine, smart contracts, and any other infinite set of potential endpoints—not just exchanges or businesses.” An unnamed official from a US exchange noted that such moves would require exchanges to effectively be “…bothering good customers and asking them for information we can’t verify.”Image Credit: Marco Verch via CC Licensing