Looming Regulatory ‘Threat to Crypto’ Could Wreak Havoc on Exchanges

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The Financial Action Task Force is reportedly readying its report on crypto, which could be taken into consideration by member countries including the U.S. | Source: Shutterstock

By HVY Journalists: It may be hard to believe, but the U.S. SEC might not be the biggest hurdle that the crypto industry faces. The Financial Action Task Force (FATF) isn’t as well known but it could pack a bigger punch than any single securities regulator ever could. FATF is “an inter-governmental body” designed to combat threats such as money laundering and terrorism financing in the global financial system. They make recommendations that are heeded by hundreds of countries, including the U.S. According to a report in Bloomberg, FATF has got crypto in its sights.

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Large cap crypto performance | Source: Messari on Twitter

The FATF is reportedly preparing to issue a report on how its members should govern cryptocurrencies, placing a specific target on the backs of custodial firms (e.g., Coinbase Custody), cryptocurrency exchanges, and crypto investment firms such as hedge funds. That memo is expected to surface on June 21, so the countdown begins.

Messari Director of Research Eric Turner told Bloomberg:

“[The FATF represents] one of the biggest threats to crypto today. Their recommendation could have a much larger impact than the SEC or any other regulator has had to date.”

The FATF is known for making recommendations about banks, and its impact on the crypto industry is dependent on how its member states “interpret” its conclusions on crypto, as Bloomberg noted. Based on past communication, the task force has stated that virtual asset service providers, e.g., crypto exchanges, would have to gather data on the parties involved in transactions worth more than USD/EUR 1,000. This means more risk management layers for crypto exchanges and other service providers.

Bittrex Chief Compliance Officer John Roth told Bloomberg:

“It’s either going to require a complete and fundamental restructuring of blockchain technology, or it’s going to require a global parallel system to be sort of constructed among the 200 or so exchanges in the world. You can imagine difficulties in trying to build something like that.”

Fortunately, despite their rivalries, the blockchain community knows how to pull together for the greater good. In this case, the FATF appears to be a crypto-averse body, one whose rules the crypto ecosystem is willing to take on together. Despite the challenge, chief among which is archaic rules that regulators are attempting to use on emerging technology, Kraken’s general counsel is cited in Bloomberg as saying:

“We are working with international exchanges to try to come up with a solution.”

The fallout will likely include higher costs, and those firms that don’t get up to speed could find themselves closing up shop. On the other hand, crypto investors who are turned off by the heightened disclosures could leave compliant exchanges in favor of more decentralized transactions. Regardless of the FATF’s findings, regulators will be hard-pressed to ignore the pace of crypto adoption across the globe.