Russia’s regulatory watchdog, the Financial Monitor Service (FMS), has joined in with regulators from many other developed economies to demand a global set of standards that clarify the nature of virtual currencies. It formally supports the actions of the FATF, the Financial Action Task Force, which announced last June that it “will publish its first rules for cryptocurrency regulation by June 2019.” The FMS supports the view that it is quicker and more prudent for a G7 inter-governmental organization to define the legal framework that is needed, rather than having each regulatory regime work separately to achieve the task in its own jurisdiction on an uncoordinated basis.
Pavel Livadny, the Deputy Director of FMS, desires that all 36 FATF member countries express their support for one set of rules, especially to combat money laundering. It has long been known that organized crime has gravitated to crypto assets, such as Bitcoin, due to the anonymity they bring. As has been reported: “A global crackdown against malicious underground activities revealed its use in some widespread crimes, including drugs trafficking, money laundering and — in limited cases — terrorism financing. The cases alerted agencies across the world, leading them to develop tentative legal provisions to regulate the crypto industry.”
After making what appeared to be a solitary request for support of FATF initiatives, the Deputy Director of the FMS wasted little time in defining what he perceived as necessary conditions. Roughly translated: “All FATF members must change the legislation to include new crypto ecosystems. They should introduce registration and license parameters for the companies developing in the space, which include exchanges, initial coin offering projects, and cryptographic administrators. FATF should also monitor the companies’ activities and standards for anti-money laundering.”
This suggestion seems tame enough, but Livadny also wants caps applied to the size of transfer transactions, $9,000 per item, as per his statement. He would also like to prevent a cryptocurrency from being easily converted to “securities, mainstream and virtual money, coins or other financial assets.” If it were used in a recorded payment transaction, where an audit trail existed, then it would be permissible, as long as caps were applied. It appears that FMS officials are wrangling their hands over the issues of anonymity in the crypto world, but are not exactly sure as to how to enable the necessary transparency they need for monitoring purposes.
The pseudonymous nature of crypto transactions have confounded regulatory watchdogs since the advent of Bitcoin and blockchain technology, but the market need to track such flows may have solutions in the making. Reporters have noted the emergence of blockchain tracking firms, many of which have already signed contracts with government agencies. It will be interesting to see if these new firms can truly provide what regulators want – the ability to pierce the veil of cryptographic enabled anonymity and block illicit flows of capital controlled by the criminal elements of our society. The future of cryptocurrencies may depend on success in this area to gain ongoing regulatory support across the world.