The cryptocurrency industry is not happy with the possibility of G20, the group of 19 large countries and the European Union, imposing stricter know-your-customer (KYC) procedures on cryptocurrency exchanges and related businesses. Calling it “more draconian than the BitLicense [New York’s operating permit system],” industry experts also believe that this is “undesirable from a privacy perspective.” (Updated on May 15 with a response from the FATF – in bold.)
The intergovernmental Financial Action Task Force on Money Laundering (FATF) met with representatives from the cryptocurrency industry on May 6th and 7th this year in Vienna, with their regulation recommendation as one of the topics. This draft recommendation was published back in February this year, but the G20 had already agreed to accept it back in December 2018. The news was first published by Bitcoin Magazine.
According to the draft, all virtual asset service providers (VASPs) will have to be licensed and do a KYC check on every single transaction, incoming or outgoing, that is above either EUR 1,000 or USD 1,000. In case the outgoing transaction is not towards a user’s personal wallet but to a service provider, all the KYC information obtained is to be shared by the recipient service provider. However, this part of the draft is not guaranteed to make it into the final version, as it depends on the feedback from the industry, the FATF said in its public statement.
“The issues will be discussed at our forthcoming June 2019 Plenary Meeting the outcomes of which will be published on our website on Friday, June 21st,” the FATF told Cryptonews.com in an email.
Meanwhile, several participants in the cryptocurrency space are already pushing back as hard as they can against this idea, dubbed “draconian” by Tuur Demeester, founder of Adamant Capital, a Bitcoin alpha hedge fund. One of them is blockchain analytics firm Chainalysis, which published a letter that warns about the technical limitations of such a proposal, like VASPs being unable to tell who a certain address belongs to, and the possibility of users simply moving towards unlicensed exchanges to evade the issues.
Another problem with the draft is the lack of concern for user privacy, according to Dutch Bitcoin broker Bitonic. The KYC information would not be contained to European service providers, but also available to those all around the world, the company warns: “We believe that it is undesirable from a privacy perspective that the U.S. are forcing the EU to endorse such an alarming obligation, which is not just relevant for companies that are active in the virtual currency space.”
Blockchain analytics firm Ciphertrace also addresses the idea of the regulation giving VASPs the right to freeze funds. “The ability of a VASP to prohibit a cryptocurrency transaction is somewhat limited because an incoming cryptocurrency transaction cannot be rejected, whether it is wanted or not. Sending funds back to the originating cryptocurrency address is not a solution to rejecting funds, as the sending address may not be able to receive funds. In such a case, the funds could be non-recoverable, which could expose VASPs to liability and claims from customers,” they explain.
Meanwhile, as reported in April, Japan looks unlikely to let up in its pursuit of international cryptocurrency regulations, and will make the most of its status as president of the G20 for 2019 in its efforts to win governments over to its way of thinking.