Cat Got your Bitcoin? With Increasing Popularity Comes Increasing Regulations for Crypto: 6AMLD, FATF Travel Act & More

Cat Got your Bitcoin? With Increasing Popularity Comes Increasing Regulations for Crypto: 6AMLD, FATF Travel Act & More

It is no secret that cryptocurrency has been volatile over the years, but today we are witnessing increasing mainstream adoption and a rise in popularity globally. Consequently, governments worried about related risks have been introducing cryptocurrency regulations aimed at preventing criminal activities such as money laundering and terrorist financing.

As noted in Aite’s recent report* “While cryptocurrencies are steadily gaining popularity, many FIs have largely avoided them and have paid little if any attention to their AML risk. This will change as cryptocurrencies continue to gain traction during 2021. The use of cryptocurrencies for payments and exchange is increasing beyond the initial use for investments, especially among certain demographics, such as millennials, or in regions of the world where local fiat currencies are unstable. The increase in the use of cryptocurrencies will inevitably expose more FIs to cryptocurrency risk, either willingly or unwillingly.

Cryptocurrency Market Growth

As with any market there is volatility in growth and value, and it’s the same case with cryptocurrencies, especially bitcoin. Crypto recently saw significant growth with the price of bitcoin reaching  record highs in the marketplace- first passing the $20k record before reaching the approximately $40k threshold, this is in addition to bitcoin reaching a market value of over $700B.

Mainstream Players Enter the Industry

COVID-19 played a role in accelerating the move away from cash toward a cashless society which despite the many conveniences can be seen as a negative when it comes to financial inclusion. The shift also paved the way for crypto to be more acceptable and desirable. Today there are apps to interact with the crypto market that make it easy to purchase digital assets with just a credit card.

Aite notes that FIs that have tended to focus more on traditional forms of money transactions have started showing interest in being part of the growing industry. Some big players such as PayPal and Square entered the crypto space, adding more legitimacy and interest in the use of crypto as currency. And we can expect to see many more investors and institutions entering the industry, especially as the pandemic has resulted in many looking to use what they consider to be a more stable currency to invest in compared to their local fiat currency (government established and maintained currency).

Regulations Introduced to Limit Risk

As governments evaluate the risk that comes with cryptocurrency, new widespread industry AML sanctions and regulations have been introduced to ensure more secure and regulated transactions. Some of the recent legislation that crypto exchanges, financial institutions and other players in the industry must comply with include:

  • OCC: In the United States, the Office of the Comptroller of the Currency (OCC) recently introduced new guidelines that enable banks and other financial institutions involved with cryptocurrency to use new technologies to perform acceptable payment activities and services, meaning that a bank may use stablecoins (cryptocurrencies designed to minimize the price volatility) to facilitate payment transactions for customers. This is a big step forward in terms of innovation and opens the possibilities that banks will use INVNs and stablecoins to transfer funds between financial institutions faster and without the need of a government intermediary.
  • EU: The 6th Anti-Money Laundering Directive (6AMLD) that went into effect on December 3, 2020 is part of European efforts for significantly stronger AML measures for preventing fraud and money laundering. This includes the use of virtual currencies, with stricter and more defined measures to be presented that will include the expansion of penalties to more parties and harsher penalties.
  • FinCEN: The U.S. Treasury Department recently proposed new KYC requirements that would require detailed identifying information of users to be provided to the Financial Crimes Enforcement Network (FinCEN) for transactions over a certain amount for an individual moving currency from a crypto exchange to a private or self-hosted digital wallet. This proposed rule is facing pushback for the extra amount of work this will cause users and exchanges when transacting, and for the extra personal information that will be gathered and shared.
  • FATF: The new FATF Recommendation 16 requirement that virtual asset service providers (VASPs) like crypto exchanges collect and share beneficiary and recipient transaction data with each other where transmittals over $1000 are made. Known colloquially as the FATF Travel Rule, the non-binding guidance was adopted during June 2019 by the FATF in its Risk-based Approach to Virtual Assets and Virtual Asset Service Providers. 

Cryptocurrency Is Here to Stay: The Need for AML & KYC

Cryptocurrencies are here to stay, and with that comes increasing regulation. The key is for these businesses to be proactive and approach compliance as a positive, finding solutions that make it easy to comply and prepare them for the changes ahead. The best technology will stay ahead of regulations, keep improving the customer experience and enable all parties to be verified to conduct trusted transactions. Automated transaction monitoring, ongoing customer risk assessment and identity verification are some of the primary features an AML/KYC solution will include to best support regulatory compliance and prevention of financial crime.

Learn more about AML compliance for Cryptos.

*Top 10 Trends in Fraud & AML, 2021: Onward and Upward, Aite


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