On August 9, a story that seems to have originated on Japan-based news source Nikkei Asian Review spread across the crypto media. The story claimed that under the guidance of the Financial Action Task Force (FATF), 15 countries had teamed up to create a new system that would collect and share personal data. The story was reported on a number of reputable crypto industry websites, including Finance Magnates. However, the story is, in fact, incorrect--there is no such task force being formed.
FATF Senior Policy Analyst Tom Neylan has confirmed in a call with Finance Magnates that "the [FATF] not developing any systems--and we wouldn’t take the data anyway,” Neylan confirmed--after all, FATF is not a law enforcement body, nor is it in the business of creating technological solutions; it merely “set standards and [promotes their] effective implementation.”
Tom Neylan, FATF Senior Policy Analyst.
However, the FATF is “talking to and working with the private sector as they are developing systems, but it’s important that they are their systems and that they own them.”
In late June, the FATF released a new set of guidelines for the cryptocurrency industry requiring that many of the regulations that are applied to banks more “traditional” financial institutions also be applied to cryptocurrency exchanges.
“[FATF’s] new standards require all crypto exchanges in all jurisdictions to know who their customers are.”
“The new standards require all crypto exchanges in all jurisdictions to know who their customers are--so they’ve got to do customer due diligence,” Neylan explained.”They need to keep that information securely and privately so that it’s available to law enforcement authorities when it’s needed to investigate money laundering and terrorist financing.”
Additionally, “they’ve got to be able to know who they’re doing business with in order to screen for sanctions--for example, against Al Qaeda or against North Korea.”
“We’ve asked the crypto sector themselves--because they know their technology better than we do--to develop systems to make sure they can apply the Travel Rule.”
“These are the same requirements that already apply to banks and other financial institutions,” Neylan said. “So it’s not something new that we’re doing with the crypto sector--it’s the same sort of customer due diligence that is already applied by traditional financial institutions.”
One of FATF’s new requirements is the application of the travel rule to cryptocurrency exchanges. The travel rule requires financial institutions to pass on certain pieces of identifying information to the next financial institution that a transaction is sent to.
“We’ve asked the crypto sector themselves--because they know their technology better than we do--to develop systems to make sure they can apply the Travel Rule.”
“This isn’t meant to breach everybody’s privacy. This is meant to ensure that criminals and terrorists can be identified once law enforcement are aware that they’re involved.”
Neylan said that reactions from the industry so far have been existed on a spectrum: “some of the industry are very resistant to Regulation in general, and particularly the travel rule."
“On the other end of the spectrum, there are a lot of the more developed exchanges, particularly from the countries that already regulate this sector, who are comfortable with being regulated and are already working on the design and the governance, the technical solutions to implement the travel rule.”
“They’re very concerned about data privacy--which, to be honest, we are as well,” he added. “This isn’t meant to breach everybody’s privacy. This is meant to ensure that criminals and terrorists can be identified once law enforcement are aware that they’re involved.”
Neylan said that the FATF is already “working with a couple of industry groups who are actively starting to develop [solutions].”
“We’re talking to the International Digital Asset Exchange Association (IDAXA), [as well as] a number of other groups and experts who are using FATF’s standards as a starting point for industry-led efforts to work out exactly how to implement this globally.”
However, “we’re not picking favorites,” Neylan added--no entity has been chosen as The Developer for a compliance solution. “This is about the industry collectively adopting one or more solutions...virtual asset service providers have got to be able to exchange information between each other in a way that protects data and privacy.”
“They’re the ones who need to protect their customers' information, so they’re the ones that have to figure out a solution that they can all apply.”
Keep an eye on the truth
Before Finance Magnates spoke with Neylan, Global Digital Finance (GDF), a crypto industry membership body that is in direct communication with the FATF--pointed Finance Magnates towards the fact that something may be amiss: “FATF’s mandate is to provide recommendations and measure effectiveness of implementation," the organization told FM. "GDF is currently unaware of any announcements from FATF or their Virtual Asset Contact group about plans to build and implement a solution to R16. FATF has previously articulated that they expect the industry to develop the solution, and demonstrate progress toward compliance within 12 months.”
Unfortunately, misinformation spreads quickly throughout the cryptosphere, in large part because of the industry's reliance on platforms like Twitter to communicate quickly. Moreover, of course, misinformation can be harmful--although it is unlikely that anyone sought to deliberately mislead anyone else (or otherwise do harm) in this instance, misinformation like this could lead to unfortunate results. For example, there are quite a few companies who may seek to opportunistically assert their products as the industry’s solution to FATF’s compliance demands in the future. This kind of opportunism could potentially contribute to the spread of misinformation.
After all, when FATF announced its cryptocurrency industry guidelines in mid-June, the industry was abuzz with concerns over how cryptocurrency exchanges and other service providers could become compliant with them. After all, the new set of standards contained requirements that, while easy for banks to comply to, are very difficult--practically impossible--for cryptocurrency service providers to adapt to.
As such, a number of individuals and organizations saw an opportunity: if they can manage to create a solution to FATF compliance that could be adopted by exchanges, serious money can be made.
So, there is quite a bit of interest in creating a compliance solution that could be quickly and easily adopted by major industry players--and while a number of organizations and individuals have begun developing these solutions, none has emerged as the clear leader.
Therefore, it could be in the interest of some of these opportunistic organizations to begin “priming the ears” of the industry for the announcement of a possible compliance solution, without naming themselves or anyone else directly--so, while ill-intent is unlikely, it certainly could be possible.
At press time, Nikkei had not responded to requests for commentary. Finance Magnates will update the story if commentary is provided.
