on the crypto
The convergence between traditional finance and cryptocurrencies has been deeper than ever this year. With the professionalization of the crypto industry, regulatory challenges have also come. Evolving industries such as decentralized finance (DeFi) and peer-to-peer transfers via platforms such as Bitcoin Pro, have introduced new problems.
However, overall, despite the confusion, both the private and public sectors have progressed in developing regulatory frameworks and solutions that will continue to influence the cryptocurrency industry for years.
The "Travel Rule" of the FATF
One of the most important indicators of the maturity of the cryptocurrency industry globally this year was the first review by the Financial Action Task Force (FATF) of its “Travel Rule” for the cryptocurrency industry in July.
The law requires Virtual Asset Service Providers (VASPs), such as cryptocurrency exchanges or wallet providers, to record the names of the senders and recipients of transactions, as well as the national IDs of the former.
The FATF noted that all jurisdictions in the world have aligned with the rule this year and announced a second revision in June 2021. With an emphasis on emerging industries such as stablecoins and central bank digital currency (CBDC), the FATF has made it clear that a second review of the implementation from the travel rule is not a sign that it will loosen its grip on the industry.
Asia continues to lead the way in the adoption of cryptocurrencies
In 2020, Asia continued to lead the adoption of cryptocurrencies and the implementation of effective regulation. This year, we saw the importance of Singapore's advancement as Asia's financial hub with its regulatory developments in the cryptocurrency space.
The city-state even passed FATF's Travel Rule requirements with the Payment Services Act (PSA) enacted this year and has often been lauded as an example of comprehensive legislation that does not hinder the progress of the industry.
In North America, proposed changes to the Bank Secrecy Act (BSA) for financial institutions and VASPs to collect and retain information on fund transfers and fund transmissions would lower the threshold from $ 3.000 to $ 250.
Meanwhile, the European Commission has proposed a new framework in the form of a Digital Finance Strategy to regulate cryptocurrencies. Uncertainties such as the ongoing Brexit deal complicate the European landscape given the importance of the UK market to Europe.
In Africa and Latin America - regions with the most pressing use cases for cryptocurrencies and digital assets - regulations have fallen behind as governments tend to take a very cautious approach on the issue. South Africa is an exception, after publishing a draft declaration of cryptocurrency as a financial product.
Private sector interoperability
The private sector has responded to FATF guidelines in a more unified way than jurisdictions and governments. While the private sector is likely to make more progress in implementing interoperable solutions that ensure a better experience for VASPs, VASPs are also to be expected to develop their AML strategies in anticipation of more regulatory oversight to come.
