Cryptocurrencies could be facing the greatest regulatory threat as the G20 meeting of finance ministers and central governors are coming up. In the meeting, the proposals from the FATF (Financial Action Task Force) are to be discussed and up for debate, and as it stands now it seems that the draft proposals will be passed without any amendments made. One of the proposals is especially worrisome as it resembles the travel rule which is applied to wire transfers using banks. Many people worry that if implemented in the current form, this proposal will hamper the growth of the industry, and now the biggest crypto exchanges are teaming up to sit down in order to discuss their concerns with regulators.
The event is named as V20 and was only planned and executed within a time frame of six weeks, in order to coincide with the G20 summit in Osaka on June 28 and 29. Among the companies sending their executives as representatives to the meeting only Circle, Coinbase, bitFlyer, Kraken, and Huobi have confirmed their attendance. We can expect more attendance from other exchanges soon. Most of these exchanges agree with most of the proposals and support it, but they disagree on any kind of regulation resembling travel rule, because of feasibility and infrastructure problems.
This is an old rule adopted in the early days of international bank transactions, in order to curb the use of banks for ease of transfer of funds for criminals and cartels. It has been the backbone of anti-money laundering and countering of terror financing regulations. This rule basically requires the bank to verify both the sender and receiver of the funds, hence it can be ensured that the funds are not transferred to any entity that is deemed to be of criminal or terror-related in nature. This law is an old 20th-century idea, which is now being imposed on the 21st-century technology blockchain and will result in failure if implemented. This can cause a transaction to go away from exchanges.
While most agree on a majority of the proposals, requiring exchanges, custodian banks and others involved in the crypto markets – collect, hold and remit information on the counterparties to customers’ trades executed on their platforms, and make this available to law enforcement. It seems far fetched and impossible to implement, and if implemented will cost a lot and impose a big change in the current infrastructure. This is what the executives from the exchange hope to convey to the government delegation.
It is a positive sign that the players in the industry are finally teaming up to educate regulators about the new technology, although it remains to be seen how much effect this effort will have on the final regulation. There is only a slim chance that the proposal could be changed or dropped. This is mainly due to the fact that powerful countries within the organization like the US and UK support the proposal in its current form. The implication of the outcome of the G20 meeting is going to be significant. On June 21st, the latest set of proposals will be released.
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