Cryptocurrency regularly features in the news, and historically has been perceived as risky and a bit of an "unknown". Crypto is evolving and for it to be seen as an asset class with efficacy, then transparency is key.
Around the world, regional authorities have become aware that they need to respond to developing risks by criminals who are exploiting these new payment methods as money laundering devices to mask the profits from their crimes. Regulation is essential and there needs to be further levels of due diligence around cryptocurrency to introduce preventative measures.
William Je Founder and CEO, Hamilton Investment Management Ltd explains: "The past ten years have seen several structural changes in Know Your Customer (KYC) and anti-money laundering (AML) regulations in both Europe and across the world. High-profile money laundering cases and the penetration of illegal monies into global markets have caught the attention of regulators. As regulators improve their understanding of these criminal practices, AML requirements have also been improved. However, these improvements have been a reactive process."
The EU has made a start on tightening up regulations in this area by introducing financial regulations that further strengthen the regulatory system to improve licensing models. Germany has been leading the way by becoming the first country in the EU to introduce regulations in this area.
One of the prominent regulatory bodies is the Financial Action Task Force (FATF) which provides guidance and determines best practices in AML and combating the financing of terrorism. The most significant guidance is in recommendation number 16 which requires businesses to collect and store the personal data of the originators and the beneficiaries in blockchain transactions.
Je goes on to say, "The criminal financial trade which arguably encompasses money laundering, illegal weapons sales, human trafficking, is also international. Thus, cracking down on it is, out of necessity, an international effort.
The decentralised nature of blockchain, which runs contrary to the central-server standard we know and use nearly everywhere, presents a formidable challenge here. Rules and regulations for traditional financial institutions are being implemented wholescale into the crypto sector. We believe that this is arguably wrong footed as it ignores the innovation and uniqueness of this asset class and that which its underlying technology entails.
Traditional forms of regulation from the fiat world do not reciprocally apply to every aspect of crypto nor to the fundamental nature of blockchain technology. However well-intentioned they may be, because these imposed regulations are built on an old system, they must be adapted and modified."