G20 countries discuss globally unified crypto standards

May 30, 2019, | AtoZ Markets At the upcoming G20 Summit, the countries-members reaffirmed their support for the Financial Action Task Force (FATF) and agreed to follow the FATF globally unified crypto standards.

G20 dialogue regarding crypto standards continues

While the G20 members are discussing how to implement the standards set by the FATF, experts suggest that there may be some problems when complying with globally unified crypto standards. The European Central Bank, however, claims that the risks that crypto represents to the financial stability of the euro area are controllable.

FATF to assist G20 in implementing globally unified crypto standards

The Financial Action Task Force (FATF) an inter-governmental authority which sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, includes 36 countries-members and two international organizations, including the European Commission.

Earlier, at the annual advisory forum for private business organized by the FATF, 300 participants discussed the mapping of virtual asset services and business models as well as the implementation of specific FATF recommendations.

In its April G20 report, the authority promised to update its guidance on regulating crypto assets and “continue to assist jurisdictions and the private sector in implementing a risk-based approach to regulating providers of virtual assets, including their supervision and monitoring.” FATF outlined, that “this will help countries oversee this sector.”

Highlighting various risks such as money laundering, the FATF also recognized:

Technological innovations, including those underlying virtual assets, can bring significant benefits to the financial system and the economy as a whole.”

Globally unified crypto standards from the different countries perspectives

Russia is among the countries that have announced their plans to implement globally unified crypto standards. However, it worth to mention, the country has not yet finalized the internal regulatory framework for cryptocurrency.

In his turn, the chairman of the State Duma Committee on the Financial Market, Anatoly Aksakov, said that “the adoption of the law on digital financial assets was“ stuck” because of FATF requirements.

Speaking at the Russian Stock Market 2019 conference, he explained that the requirements would either be implemented in the law on digital financial assets, or in a separate bill.

Japan, the host of the June G20 summit, has been actively working on implementing global standards on crypto assets. Last week, the country’s House of Representatives passed a crypto bill with a number of required resolutions.

In April, Atoz Markets reported, that Tokyo has developed a guide to crypto-related regulatory proposals that will be distributed to all participants in the G20 summit in order to reach a quick consensus on the legislation process.

In December 2018, the Financial Services Agency (FSA)of Japan, released a report stating: “To manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes.”

Another representative of the Asian market, South Korea has announced several times that it will comply with the globally unified crypto regulatory standards.

Chairman of the Financial Services Commission Choi Jong-Ku At a plenary meeting of the Financial Stability Board (FSB), stated that “Transnational cooperation is necessary to regulate virtual currencies.” He stressed the importance for each country to consistently implement international standards prepared by the FATF, “to minimize non-compliance with regulatory requirements”.

Obstacles on the way of globally unified crypto standards implementation

Blockchain analysis firm Chainalysis in its feedback to the FATF on its guidance for crypto assets stated, that” it would have profound implications for the cryptocurrency industry.

The blockchain firm outlined, that requiring the transmission of information identifying the parties taking part in the crypto transaction is not technically possible. The Chainalysis officials explained it by saying the following:

Cryptocurrencies were originally designed as a peer-to-peer financial system that has no central authority and no intermediaries. In most cases, crypto exchanges are unable to tell if a beneficiary is using another exchange or a personal wallet.

They outlined that public exchanges could collect and store know your customer (KYC) information of each transaction originator, and “also link their customers with their specific transactions as this information is not available on the public ledger.”

The company also referred to the so-called “unintended consequences,” The firm clarified the aforementioned term further by saying that “there is no infrastructure to transmit information between cryptocurrency businesses and no one has the ability to change how cryptocurrency blockchains work.

Chainanalysis concluded, that “forcing onerous investment and friction onto regulated businesses, could reduce their prevalence, drive activity to decentralized and peer-to-peer exchanges, and lead to de-risking by financial institutions. Such measures would decrease the transparency that is currently available to law enforcement,”

Globally unified crypto standards on the ECB radar

In its report, “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures,” the European Central Bank (ECB) provided the results of its analysis on crypto assets’ potential risks they may pose to market infrastructure, payments, and stability of the financial system.

According to the Central Bank, the effects of crypto assets on and/or risks to the financial stability of the euro area, monetary policy, and payment and market infrastructures are limited or manageable at the moment.

The ECB also noted that crypto assets cannot be used for cash settlements in important infrastructures of the financial market in the EU. The organization stated that crypto assets “do not qualify as securities and central securities depositories cannot perform calculations on digital assets.”

The European authority outlined that the development of the crypto asset market is dynamic so as the financial sector, and the economy may increase in the future.  

Thus, it is important that the ECB continues to monitor the crypto market and increase readiness for any adverse scenarios in cooperation with other relevant bodies.

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