Regulatory pressure finally catches up with cryptocurrencies

Regulatory pressure finally catches up with cryptocurrencies


The lack of regulations that the crypto industry faces today will soon come to an end according to Julie Myers Wood, Chief Executive Officer of Guidepost Solutions, a New York-based consulting firm that offers compliance-related investigations and security services.

Wood’s argument is primarily based on a steady uptick in suspicious activity reports or “SARS” as they are known in the intelligence community, around crypto-currencies. The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) says there are now 1,500 such reports every month. The constantly shifting landscape of crypto in the US is confusing investors, and these reports are only adding to their apprehension.

Changing with time

Prior to becoming CEO of Guidepost Solutions, Julie Myers Wood held leadership positions within the US Departments of Homeland Security, Commerce, Treasury and Justice and also served as the Head of Immigration and Customs Enforcement, Assistant Secretary for Export Enforcement and Chief of Staff for the Criminal Division at the Department of Justice. Her experiences holding these vital positions gives her the ability to offer an advanced perspective on the state of the industry.

Wood points to “the recent rapid rise in the marketplace to develop and deploy regulated stablecoins”. She went on to explain “The perceived advantage of a stablecoin is that it should be a more stable digital currency because it is pegged to fiats or assets such as the US Dollar, the Euro, other sovereign currencies, or gold. According to a report recently published by crypto wallet firm Blockchain, over 50 stablecoin projects are in development now,” .

Gemini (the Gemini Dollar), Paxos (Paxos Standard), and Circle (US Dollar Coin) join Tether in the group of upstarts recently subject to criticism for compliance issues and a cyberhack. “Although stablecoins often serve as a liquidity tool for a crypto-currency exchange, the recently announced stablecoins are being pitched with more uses for customers, such as insurance, loans, or even real estate settlements,” said Wood. “With the development in new stablecoin products, regulators are increasingly focused on stablecoin offerings, as more and more persons become active in the retail market for crypto-currency.”

Woods expects government agencies to clean the market of currencies associated with compliance risks as more and more institutional investors enter the lucrative market. “Institutional investors who are concerned about cyber breaches and market manipulation may factor this into their risk calculation and investment strategy. Some experts have claimed that the currencies will centralize towards a key leader, while others predict that diversity in the market will continue absent systematic market manipulation,” said Wood.

Global Standards

As regulators try to adjust existing frameworks to new technologies, courts of law will be more involved as rapidly expanding regulation will complicate jurisdictions. “A couple of key factors are driving this trend. First, there is a push to bring crypto-currencies into more formal regulatory structures. In the US, the New York State Department of Financial Services’ BitLicense and the New York Private Trust Company charters for crypto businesses are representative of this trend,” said Wood. “Another example of this trend, on a global level, is the recent announcement by the Financial Action Task Force [FATF] that they will be developing crypto guidance relating to terrorist financing.”

Wood is of the opinion that bodies like FATF are vital for setting up global standards since the regulatory framework in many countries is extremely underdeveloped and/or is outpaced by the evolution of the cryptocurrency market. More refined reporting and analysis of the cryptocurrency markets are being demanded by financial institutions in an attempt to better understand risks associated with operating in specific countries (like the Basel AML Index).

Focusing on KYC (Know-Your-Customer) and KYT (Know-Your-Transaction) for more consumer targeted technological breakthroughs will now bring about greater opportunities for regulators, law enforcement, and compliance innovators to validate customer transactions quickly. The rapid rise of the crypto sector have definitely given some established countries a clear advantage compared to more underdevelopment countries, especially in Asia. Member states of the FATF will be subject to negative global publicity after receiving a less than favorable report from the organisation, this will pressure members to prepare for the ‘rising tide’.

“The US Government could also be a source of both regulatory resources and guidance from all of the various agencies that dabble in the space such as the US Securities and Exchange Commission, Commodities Futures Trading Commission, and FinCEN, (to name just three) and exert pressure because of some of its recent investigations and enforcement actions involving crypto businesses based in non-US countries.”

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