Tough FATF Regulations Confirmed, but Compliance not Compulsory

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New regulations that would force crypto-handling organizations to collect information about senders and recipients of digital currencies were confirmed Friday, but adoption may not be as widespread as first thought. The regulations created by the Financial Action Task Force on Money Laundering (FATF) were published Friday and confirmed what the likes of exchanges and crypto investment funds feared – that much more detailed records would need to be taken – but there may be a saving grace as governments will not be forced to sign up to the scheme.

FATF Demands Released

Among the FATF proposals was an ominous demand for crypto-handling entities to:

… obtain and hold required and accurate originator [sender] information and required beneficiary [recipient] information and submit the information to beneficiary institutions … if any. Further, countries should ensure that beneficiary institutions … obtain and hold required (not necessarily accurate) originator information and required and accurate beneficiary information …

This information is broken down into more detail, which asks those affected to obtain the following:

(i) originator’s name (i.e., the sending customer);
(ii) originator’s account number where such an account is used to process the transaction (e.g., the VA wallet);
(iii) originator’s physical (geographical) address, or national identity number, or customer identification number (i.e., not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth;
(iv) beneficiary’s name; and
(v) beneficiary account number where such an account is used to process the transaction (e.g., the VA wallet).

The FATF also stated that it “expects all countries to take prompt action to implement the FATF Recommendations” and will conduct a review in June 2020 to check on progress. Blockchain investigation firm Chainalysis has already issued a strong warning about the implications of the regulations, stating back in April that “requiring a transmission of information identifying the parties is not feasible” given the anonymity associated with crypto addresses. It also warned that forcing such measures onto exchanges could lead to some going out of business and pushing rogue actors onto peer-to-peer and decentralized exchanges, which are much harder to track.

Governments Not Required to Implement Regulations

It is important to note that FATF recommendations are not law – their proposals have to be adopted and written into law by the member states. In fact, their recommendations don’t need to be followed at all – member countries are perfectly entitled to ignore FATF recommendations, but doing so risks being added to the FATF blacklist, which would immediately block off all sorts of foreign investment. However, the US has previously ignored several recommendations and it doesn’t seem to have hampered their foreign investment, so there is the potential for these regulations to prove too onerous for governments to implement.