The coin center, a not-for-profit organization recently analyzed the new draft for cryptocurrency guidance which was developed by the financial action task force. It remarked that this new draft will have adverse effects on privacy and innovation. After a thorough analysis of the Financial Action Task Force (FATF) document, the non-profit firm confirmed that this new draft is an update to the previous draft.
FATF’s first document was released in 2015 and there were similarities between it and FinCEN (a United States’ Finance Regulatory Body). In the 2019 update to its document, the FATF demanded “complete and unlimited surveillance.” This latest draft is the sixth and is titled “Guidance for A Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (VASPs).”
What Is FATF and What Does It Represent?
The G7 summit, which took place in Paris in 1989, gave the go-ahead to establish the FATF amidst growing worries over illicit financial transactions and the threat it poses to the finance industry, especially banks. Members of the task force were drawn from 37 member jurisdictions and two regional organizations, namely the gulf cooperation council and the European Commission.
The FATF is responsible for fighting threats to the international financial system, terrorist financing, and illegal financial transactions by making recommendations. These recommendations are adopted and implemented all over the world.
Concerns About FATF’s New Cryptocurrency Regulation Draft
Coin center’s analysis revealed three major flaws in the newly released document. The first is the “surveillance obligation for non-custodial entities”. This part of the draft is a problem because the FATF now demands that VASPs must include multi-signatory minority keyholders, several holders of smart contracts, and “layer two” processes. If the draft is adopted as a recommendation, it would be completely different from FinCEN’s current policy and global agreement which coin center has contributed to its development over the past five years.
The second and third issues are about privacy. Coin center considered them as an introspection into customer counterparty identification, privacy technology, and peer-to-peer transactions. The document emphasizes the need to uncover payees and payers for services by limiting support for unregistered firms and exchanges. It also compels new protocol developers to significantly reduce the possibility of P2P and private transactions.
Updating Laws That Govern Virtual Assets
The good news is the FATF requests for input from the public not later than April 20 and the coin center will also be issuing their comments.
The release of the draft coincides with the time most authorities across all regions are considering various ways to monitor cryptocurrencies. Various governments have proffered different conditions. While some have taken a more measured approach, a few have taken the draconian route. For example, India is contemplating a total ban, while South Korea has banned privacy coins.
In the meantime, the American government is after crypto assets that have contravened securities laws. An example is the SEC versus ripple court case. Since asset categories are naturally decentralized, the authorities might struggle to implement these restrictions practically. But these authorities continue to make all efforts to achieve their objectives.