The demands for regulation of cryptocurrencies and their related service providers, primarily heard from worldwide exchange operators, are finally being heard. The Financial Action Task Force (FATF) announced on Monday that it “will publish its first rules for cryptocurrency regulation by June 2019.” Prices for Bitcoin and other major tokens did not react to the news, but its time had come and was surely welcome news.
The FATF is an inter-governmental organization that was founded in 1989 when G7 financial ministers created the initiative to develop global policies to combat money laundering. It later expanded its mandate to include the financing of terrorist groups. Up until this point in time, regulatory entities across the globe had been modifying policies and rulings on a case-by-case basis. It was time for an “ombudsman” to step forward to end the confusion and establish crypto standards for all jurisdictions to follow.
Reuters noted that, “The FATF said in a statement that the new rules will require every jurisdiction to properly license or regulate crypto exchanges and some firms to provide encrypted wallets.” The targeted date of June of next year would allow ample time for regional submissions, debate, and then a review of proposed policies. FATF President Marshall Billingslea added that his group would also provide an initial audit/compliance function with regards to implementation of the new standards, and that, “By June, we will issue additional instructions on the standards and how we expect them to be enforced.”
The official release reiterated that “As part of a staged approach, the FATF will prepare updated guidance on a risk-based approach to regulating virtual asset service providers, including their supervision and monitoring; and guidance for operational and law enforcement authorities on identifying and investigating illicit activity involving virtual assets. In light of the rapid development of the range of financial functions served by virtual assets, the FATF will also review the scope of activities and operations covered in the amended Recommendations and Glossary in the next 12 months and consider whether further updates are necessary to ensure the FATF Standards stay relevant.”
At present, crypto exchanges have sprung up in recent years across major countries to meet escalating consumer demand. Limited resources, however, along with thin margins, have forced many operators to cut corners, unfortunately in the area of security standards. The resulting lack of security protections has led to a significant list of compromises, tens and sometimes hundreds of millions of dollars of fraud losses and a few very public bankruptcies along the way. Organized crime in the form of sophisticated hacking rings is at the heart of the problem. If cryptocurrencies are to thrive in future, the supporting infrastructure must be secure.
A secondary issue also exists with Initial Coin Offerings (ICOs). Fraud is omnipresent in this arena, as well, due in part to the lack of adequate disclosure requirements and out-of-date laws that provide confusing guidance at best. Security regulators are in constant debate on how to address ICOs, and a few have clamped down hard on those that they perceived had violated existing security law. FATF Standards will go a long way to removing the uncertainty and confusion that presently plagues the ICO industry.