The Financial Action Task Force might be aiming to go all-in into the crypto space with the ultimate aim of achieving the impossible – eliminating anonymity from Bitcoin transactions. It has also devised a plan for this goal.
In what could be described as a synergistic performance, within the last year, financial regulators around the world have worked together to implement strict regulations aimed at curbing cryptocurrency transactions, which, at present, are outside the purview of existing financial networks.
Now, in a bid to arrive at a solution for anonymous cryptocurrency transactions, major financial bodies around the globe are actively developing means of regulating the cryptocurrency space either by banning cryptocurrencies or pushing for the removal of anonymity from cryptocurrency transactions. With the Financial Action Task Force (FATF) at the head of this movement, the body has, in a report released in June, throwing more light to how it intends to achieve control over crypto institutions and completely do away with transactional privacy.
In June, the FATF had released a new regulation directed at breaking the privacy of cryptocurrency transactions called “the Travel Rule”. The Travel Rule dictates that all financial institutions must identify the sending and the receiving parties when the amount of the transaction is equal to or greater than $3000. In order to achieve this, exchanges are first required to verify the identities of their customers through the traditional Know-Your-Customer (KYC) procedure and then whitelist the addresses that complete the KYC satisfactorily. Secondly, in the cryptocurrency transactions, a technique to “embed text data by converting the data into a wallet address and sending that address a small number of funds” could be used for including relevant consumer data in the transaction. But, doing this would lead to exposing a lot of private consumer data publicly with no means of removing it.
The implementation of the Travel Rule would lead to the FATF acquiring the data of consumers which fall within the regulatory boundaries, including their names, the sender’s name, the sender’s account number, the sender’s address, the sender’s financial institution’s name, the amount, the date, and the beneficiary’s financial institution’s name.
According to Neal Reiter, Direct of Product Management of Identity Mind, a leader in international KYC and transaction monitoring industry,
These new regulations were passed under the final days of the US leadership, meaning the US wanted them. I would expect the US to come out with new regulations by the end of this year and give companies 12 months to comply.
The FATF would create a list of exchanges which are duly registered and are compliant with the Travel Rule. This would create a division among exchanges and according to Neal,
Exchanges would have to whitelist addresses and only transact with those addresses. These will be the compliant exchanges, there may be a very small group of them. Certain exchanges would not want to comply, these will be called non-compliant exchanges. Compliant exchanges would not be able to deal with compliant exchanges.”
The implementation of this rule is a double-edged sword. Not only will the anonymity of the cryptocurrency be gone, but this new rule would lead to the exclusion of a lot of individuals that do not have the required documents to complete KYC. One of the main value propositions of cryptocurrencies – providing financial inclusion to all the people in the world, will also be lost. Cryptocurrency institutions will begin to resemble traditional financial institutions that hold consumer data in centralised silos.
On the other hand, the continuing allegations against cryptocurrencies being used for terror financing and illegal trade may finally stop.
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Staff writer at Coingape. Certified cryptocurrency expert and Blockchain journalist covering crypto market analysis and general Blockchain adoption and development.
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