FATF Needs to Narrow Down on DeFi Oversight; Not A One Size Fits All

The Financial Action Task Force (FATF) will need a new approach in crypto policing, according to XReg consulting senior partner, Siân Jones, who was speaking during the second V20 Virtual Asset Providers Conference. She particularly noted the emerging trends in Decentralized Finance (DeFi), a niche that Jones recommended FATF pay closer attention to to understand the nitty-gritty that would form part of future policy oversight.

So far, the FATF Travel Rule is the most advanced piece of oversight that governs Virtual Asset Service Providers (VASPs). The initiative, which came into action last year, requires service providers in the crypto sector to share personally identifiable information (PII) for transactions above $1,000 from one platform to another. To comply with the Travel Rule, stakeholders have some solutions, with the most popular being the InterVASP Messaging Standard (IVMS 101).

FATF Should Narrow Down on DeFi

While the Travel Rule has done it for most regulators, Jones brought FATF to pace with the developments in DeFi. She explained that DeFi removes intermediaries who would eventually make it hard for the AML watchdog to implement oversight on crypto activity within this space. Jones believed that FATF must consider new approaches to curb AML and terror-financing within this nascent industry. She said that,

“The tried and tested methods work, after a fashion, in the traditional world of money. Arguably, they can be made sort of fit the intermediated crypto world. They do not necessarily fit a DeFi world where they are not fit for purpose.”

Crypto Community More Effective in One Voice

Jones, who told DeFi stakeholders they need to ‘wake up and smell the coffee’ in matters regulation, also had some suggestions for the crypto community to enhance the cooperation in forming policies. She noted that FATF ought to double down its efforts in engaging the crypto community, including the DeFi developers. Likewise, the crypto community needs to work closer with FATF and present its opinion in a unified voice.

“Equally, the industry needs to work more closely together to present a unified voice and its engagement with the FATF and regulators.”

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Author: Edwin Munyui

FATF Releases Red Flag indicators To Identify Money Laundering Using Crypto

  • The Financial Action Task Force (FATF) releases report on how to identify possible red flags in crypto money laundering rings across virtual asset service providers, or VASPs in short.
  • The regulator highlights a number of ways that crypto exchanges can stop and curb illegal and illicit activity.

The report titled, Virtual Assets – Red Flag Indicators of Money Laundering and Terrorist Financing, outlines several red flags including those arising from irregular transaction patterns, anonymous transactions, arising from senders and receivers and sources of wealth profiles of the crypto users.

One of the red flags arises from the size and frequency of transactions whereby a money launderer could make multiple high frequency transactions over a period of 24 hours or staggered and regular transactions which stop shortly after they are made. Moreover, transferring virtual assets to exchanges with low or non-existent AML/CFT rules is also considered a red flag.

User profiling is also an excellent way of noticing possible money laundering and terrorist financing. Here, exchanges are tasked with checking on the transactions made and comparing it with the user’s profile.

This arises when a user deposits an unusual amount to their wallet which does not match the traders profile or recent transactions. This could signal the deposit is subject to checks of money laundering, scamming or a money mule. The report reads on transaction patterns as a red flags stating,

“Conducting a large initial deposit to open a new relationship with a VASP and funding the entire deposit the first day it is opened, and that the customer starts to trade the total amount or a large portion of the amount on that same day or the day after, or if the customer withdraws the whole amount the day after.”

Also quick deposits and withdrawals of full balance of virtual assets in a short period of time raises eyebrows.

Virtual asset accounts with no logical business explanation making frequent deposits and transfers off the exchange to less KYC friendly exchanges poses a red flag. Accumulation of funds from several unrelated exchanges or wallets sending small amounts to one virtual asset account before fully withdrawing the funds may be a money laundering scheme.

Regulators should also follow users who use anonymity enabled public cryptocurrencies and privacy coins such as Monero, Zcash and Dash closely, the report states. Also the exchange of public and transparent crypto coins such as Bitcoin for the anonymity enhanced cryptocurrencies also raises questions on the actions of the trader.

FAFT has pushed through KYC/ AML regulations and compliance rules for VASPs across the globe in a bid to curb money laundering and terrorist financing using crypto. The “Travel Rule” recommends that the 200 countries that follow it, say to mandate VASPs such as custodians and crypto exchanges to retain and share any information on possible illicit and illegal trades happening on their platforms.

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Author: Lujan Odera

Stablecoins Yet Again Under Regulatory Scrutiny In Revised FATF Report

In a Tuesday report, the Financial Action Task Force, with members from about 200 countries, said stablecoins need to comply with standards to guard against money laundering and terrorism financing.

FATF is an inter-government body that sets international standards to prevent illegal activities related to money laundering and terrorist financing watchdog. It was after a 12-month review completion that the report was prepared for the G-20 finance minister and central bank governors.

Lately, regulators are taking a strong stance against fiat-begged stablecoins like Tether (USDT). With the latest step by the FATF, the exchanges and other entities supporting stablecoins will likely have to verify the identities and comply with different policies.

“My assumption would be that FATF will update guidance in relations to stablecoins in the near future,” said Jesse Spiro, global head of policy and regulatory affairs for compliance technology provider Chainalysis.

Potential to be mass-adopted on a global scale

The total supply of stablecoins has doubled this year and is now quickly approaching the 12 billion mark.

Interestingly, USDT issued on Ethereum accounts for more than half of the total stablecoins supply. Also, the market cap of Tether has surpassed $10 billion.

Amidst this surge of stablecoins, the new rules would impose anti-money laundering (AML) and know-your-customer (KYC) requirements on stablecoins like Tether and also the new endeavors like Facebook’s upcoming Libra.

Stablecoin providers and exchanges that support coins would have to set up processes for monitoring transactions, investigations, and regulatory filings, Spiro said. Also, they would have to make sure that OTC trading desks are compliant. Tether uses Chainalysis for a part of its compliance process; Spiro told Bloomberg.

“OTC desks, there’s been a lot of illicit activity that we’ve been able to follow through,” said Spiro. “It’s something that regulators are going to be taking a long hard look at.”

The fiat-pegged digital currencies were an attempt to mitigate the extreme volatility in the cryptocurrency market. Tether, a popular stablecoin is especially used in China for fiat on- and off-ramp, since the country banned direct fiat channels in 2017. It is also used by export-import businesses in Asia.

According to FATF, “stablecoins appear better placed to achieve mass-adoption than many virtual assets.” For instance, Facebook wants its Libra to be used by 1.7 billion of the world’s unbanked.

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Author: AnTy

Global Monetary Enforcer FATF Shares Concerns About Libra And Stablecoins

The Financial Action Task Force (FATF), one of the most important financial regulators in the world, has recently voiced some concerns about Facebook’s Libra project. According to the institution, Libra and other stablecoins could pose several risks if they were to achieve mass adoption, especially when considering money laundering and terrorist financing.

Xiamgmin Liu, the president of the organization, has talked about the future and the dangers that stablecoin projects such as the Libra could pose to society. He affirmed that if stablecoins were very widespread, they could bring in new risks to the table.

According to the president, it is the responsibility of the FATF to prevent any kind of money laundering, especially when it involves new technologies and regulations. Because of this, they would have to take a very close look at these projects to prevent them from creating unnecessary risks.

Ever since the announcement of Libra, the regulators from all over the world seem to have woken up to the “dangers” of cryptocurrencies and stablecoins. While Bitcoin was often seen by many as a speculative asset or a coin used by criminals, corporate projects such as Facebook are seen as real threats to the sovereignty of countries and are receiving scrutiny.

Many authorities from all over the world seem to be concerned with the Libra and its possible uses for money laundering as well as its ability to threat national fiat currencies in countries that are not very stable. Facebook also does not have a good track record when it comes to keeping the data of its clients private, so the situation only gets worse.

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Author: Silvia A

New Jersey Will Soon Have a Blockchain Initiative Task Force of its Own

  • The resolution to create such a task force was passed by NJ Governor Phil Murphy.
  • The task force will have to submit its findings/recommendations to the state government every 180 days.

In what is being considered a welcome move by crypto enthusiasts all over the world, the Governor of New Jersey (NJ) — Phil Murphy — has just signed a bill that will allow for the creation of a NJ-centric blockchain task force (BTF).

Additionally, as per an announcement made by the NJ state department a few days back, the task force will be responsible for dealing with things related to:

It should also be pointed out that the new BTF will comprise of 14 people — all of whom will be selected by state government officials of varying ranks.

The task force will have to submit a report on its findings to the NJ government every six months. Not only that, they will also have to conduct CBAs (cost benefit analyses) so as to help filter out the best projects that are currently available within this burgeoning domain.

The task force is going to be helmed by New Jersey’s current Chief Technology Officer Chris Rein (who is quite well known for his pro-crypto stance).

In regards to this entire development, Senator James Beach — who was one of the main sponsors of this bill — recently commented that through the use of blockchain solutions, different state governments can bolster their native security protocols in a big way. He also added:

“Blockchain is a technological innovation that will protect us from hackers and those seeking to steal our information […] I believe that whatever the taskforce decides, there is a place for blockchain to be used in local governments to protect them from the ever increasing dangers of the Internet.”

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Author: Shiraz J

Linda Lacewell Bags Approval from New York Senate as Superintendent of Department of Financial Services

Linda Lacewell Bags Approval from New York Senate as Superintendent of Department of Financial Services

Saddled with the task of governing more than a thousand different financial institutions, the Department of Financial Service will now have a new superintendent.

Linda Lacewell, the new overseer, was confirmed by the Senate in the state of New York. She was initially nominated by the New York State governor, Andrew Cuomo, following her service as his Chief of Staff after which she became the DFS’ acting superintendent.

The New York DFS is one of the first in the United States to make some effort in bringing order into the cryptocurrency sector with regulation, since 2015. Since inception, the DFS has given authorization to about nineteen different cryptocurrency startups that satisfied the DFS’ BitLicense statutes.

The DFS hopes to regulate the sector so that as much as possible, customers and investors are protected, security is ensured and criminal activity like money laundering is prevented.

Lacewell is known as an ardent supporter of innovation and hopes to use regulation not to stifle the growth of the sector but to ensure sanity and reduce exploitation. Sometime ago, while speaking on why the DFS is working tirelessly on regulation, Lacewell said:

“A regulated industry protects customers while supporting innovation and ensuring our financial services sector is a vibrant part of New York’s economy.”

The requirements for a license are known to be quite strict, even as the body seeks to support the regulated trade of cryptocurrency. Just recently in April, the DFS deprived Bittrex of a license because the firm had not fulfilled all the necessary Know-Your-Customer (KYC) requirements.

According to the DFS’ Executive Deputy Superintendent for Banking, Shirin Emami, Bittrex had an “obligation to conduct appropriate due diligence on all types of assets” and didn’t do so satisfactorily.

After the official confirmation, Lacewell put out a statement thanking the governor and all the members of the senate for the opportunity for her to continue her work. According to the statement:

“It is an honour and a privilege to be confirmed as Superintendent of the Department of Financial Services. I thank Governor Cuomo and the members of the New York State Senate for the opportunity to lead this essential agency and I look forward to working with the entire legislature at a time when it has never been more important to protect consumers, safeguard markets, enforce the law and encourage real financial services innovation.”

Lacewell will be the third person to occupy the role of superintendent of the New York State Department of Financial Services. The agency was established back in 2011 and is an amalgamation of the insurance and banking agencies in the state.

Linda Lacewell is credited as the person responsible for the creation of a Cyber Division specifically dedicated to cybersecurity and consumer protection. The division will also do its best to ensure compliance from all the regulated firms as they carry out their activities.

Lacewell at a different time had explained her interest in innovation regarding financial technology, stating that the DFS is also expected to watch the fintech space for emerging technology. According to her:

“It’s actually the job of DFS not only to regulate banking and insurance, but to keep an eye out for emerging products like Bitcoin, Fintech and other areas. “It’s part of our responsibility to look there to identify those issues and to try to responsibly regulate in a careful manner.”

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Author: Tolu