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Crypto Regulatory Framework

The European Union Publishes Study Detailing Loopholes in Cryptocurrency Industry, Recommends Creation of New AML Regulator

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Since its inception, countries in the European Union have played an active role in the cryptocurrency industry. The EU recently published a new study to make sure that members of the cryptocurrency industry do not utilize any of the loopholes in the written law.

The study covered several topics in the industry ranging from stablecoins to AML issues in the world of digital assets. According to the key points mentioned in the study, assets such as stablecoins and token-based fundraising need to come under the purview of the law. 

The report was titled ‘Crypto-assets: Key developments, regulatory concerns and responses’ looked at the issues in the industry and how it can be rectified. Authors of the report claimed that cryptocurrencies can be used to convert illegally obtained capital in to clean cash. This money laundering technique has become a major thorn in the side of regulators, with many countries complaining of rapid capital surges.

Members of the EU further opined that there were several blind spots in the digital asset industry and the sooner they are rectified, the better. An excerpt from the report said:

“Newly mined coins are by definition ‘clean’, so if someone (e.g., a bank) is willing to convert them into fiat currency or other crypto-assets, the resulting funds are also clean. A first regulatory step could be to try to map the use of this technique and subsequently, if it effectively proves an important blind spot, to consider appropriate countermeasures.”

The EU suggested that regulators need to broaden the scope of the definition of virtual assets by including parameters such as security tokens. Another recommendation put forth by the EU was related to cryptocurrency exchanges. The body believed that crypto to crypto exchanges as well as financial services providers in the industry need to be surveyed. Cryptocurrency mining and miners were the other concerns of the EU.

The report said that anyone with a powerful computer could begin mining cryptocurrencies, which would also include criminal actors. It continued:

“A first regulatory step could be to try to map the use of this technique and subsequently if it effectively proves an important blind spot, to consider appropriate counter measures. In addition, and in view of the cross-border nature of crypto-assets and their misuse, the introduction of a European AML watchdog could have various benefits, especially if it is staffed with highly trained IT personnel capable of analyzing the AML/CFT risks new technologies bring.”

Stablecoins was another pain point for the EU. The report indicated that most stablecoins have a local footprint that can be used to track the sender and receiver. Several countries have entered the cryptocurrency sphere in recent years, with many developing their own Central Bank Digital Currencies [CBDC]. Christine Lagarde, the president of the ECB had said that the body was assessing the value of CBDCs in daily value.

 

The French Bank is Planning an Experimental Program on Central Bank Digital Currency

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Several countries have already begun or finished testing their Central Bank Digital Currencies across the world. The French Central Bank has recently revealed that it is looking to test the CBDC for inter-bank settlements. The Central Bank has invited all interested parties to submit their applications.

According to a document published by the Bank of France on 30 March, the Bank invited applications to test the use of a virtual euro. The aim of the central bank is to explore the potential solutions that CBDC can provide to clear and settle digitized financial assets.

CBDC will not necessarily be using blockchain technology

However, despite the Bank of France advocating for blockchain-based solutions to settle payments across the continent before, the bank has claimed that it has not established any particular technology in its proposed CBDC test.

According to the document, ten CBDC-related applications will be selected by the French central bank between firms or individuals. The bank says that this approach would help to create an “innovative nature” as a critical selection benchmark.

In addition, the Bank of France emphasizes, according to another detailed document, that applications should be submitted by persons within the European Union; or in a State Party to the Agreement on the European Economic Area. Interested applicants have to file their applications until May 15, 2020. The selection process of the applications will commence on July 10.

Key objectives of the CBDC testing program

The CBDC testing program focuses on three key objectives, which include forming the CBDC solution for inter-bank settlement; highlighting its benefits; and exploring the potential risks involved. The Bank of France has outlined three CBDC use cases such as payment against financial instruments, as a method of settlement against other CBDCs; and as a method of settlement against cryptocurrencies.

The bank has pointed out that it will not participate in the creation of money during its Central Bank digital currency test program. In addition, the bank has made it clear that the token displaying the figures in Euro in the virtual form will be destroyed after the accounts on which the transactions are settled.

The central bank also stated that it would not apply whichever program at a broad scale. The bank noted:

“These experiments will act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.”

France allegedly plans to issue CBDC by Q2 2020

The Bank of France’s latest CBDC program marks the first time that the Central Bank has been speaking about CBDC since December last year. Bank of France Governor François Villeroy de Galhau back on 4 December last year reported that the bank is planning to begin the pilot phase of the CBDC in Q2 this year.

On the other hand, the deputy governor of the central bank, Denis Beau, has formerly noted that blockchain-based payments; can be used to enhance several payments and financial processes.

In conclusion, back in March, the French market watchdog, the Autorité des Marchés Financier suggested a regulatory sandbox; to test and investigate the potential advantages of using virtual assets within the EU.

 

 

Binance and Coinbase among Crypto Firms to Secure Singapore Temporary Licensing Exemption

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The Singapore Monetary Authority has given a temporary exemption to several cryptocurrency firms operating in the country under the new Payments Services Act. The crypto firms that would benefit from this move include Binance, Coinbase, Gemini, Bitstamp, Luno, Upbit, and Wirex.

The central bank of Singapore, the Monetary Authority of Singapore (MAS) earlier this week published a list of cryptocurrency firms that have been excluded from holding an operating license under the Payments Payment Services Act (PS Act) 2019; for the six months grace period. This new act that regulates the cryptocurrency services industry, went into effect earlier this year.

The official MAS document notes that organizations that were in the payment services market before the enactment of the PS Act and did not inform MAS after the passage of the Act would be found in violation of the Exemption Regulations. Consequently, they are not allowed to undertake crypto-related operations as they are no longer licensed

“These entities are not licensed under the PS Act to provide the specific payment services, but are allowed to continue to provide the specific payment services.”

The Payment Services Act categorizes

The Payment Services Act categorizes six categories of “specific payment services” These are account issuance service, domestic money transfer service, inward cross-border money transfer service, merchant acquisition service, e-money issuance service “where the e-money issuer’s total float doesn’t surpass $30,” and “digital payment token service.”Crypto-currency services come into the umbrella of digital payment token services.

Firms that provide digital token payment services are excluded from holding a license for a period of six months since the enactment of the act. According to MAS, this period will come to a close on July 28 since the Act was activated on January 28. However, firms that offer different services can progress with their business for up to 12 months without a license. As per the law, this period should draw to a close on January 28, 2021. 

Firms to benefit from temporary licensing exemption include

Cryptocurrency firms including Coinbase, Binance Asia, Bitstamp, Bitcross, Bitcoin Exchange, Zipmex, Coincola, Ripple Labs, Quoine, Luno, Upbit and Payward are among the firms that should abide with the new Payments Services Act before July 28. Other digital currency firms that provide other services on top of crypto-related services such as Gemini Trust, BitGo Singapore, Wirex, LedgerX and Paxos Global. The entire compilation is here. According to MAS:

“The exemption will cease after the specified period; or if the entity submits a license application under the PS Act; on the date that the application is approved or rejected by MAS, or withdrawn by the applicant.”

The cryptocurrency firms’ licensing framework in Singapore is progressing. The country is a massive advocate of digital currencies and their daily use to settle financial needs. Singapore’s demand is for the industry participants to observe the strict anti-money laundering regulations  in the PSA. This act provides the relevant protection to both the investors and the companies involved.

Bithumb Partners with Chainalysis as South Korea Scales up Regulations

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Blockchain forensics firm Chainalysis announced on March 10 that it will partner with South Korea-based cryptocurrency exchange, Bithumb following the successful passing of new crypto-currency laws in South Korea.

Bithumb will use the Chainalysis Reactor Inquisition tool to monitor skeptical activities on its platform. The main reason for Bithumb’s latest move is to keep up with the most recent amendment to the Special Financial Transactions Information Act.

The Korean Government is accelerating the imposition of digital currency taxes following the adoption of the amendments by the National Assembly. According to the Financial Services Commission (FSC), the revised regulations require cryptocurrency firms to implement anti-money laundry measures to ensure that individuals use their real names in the same way as traditional banks.

In addition, the new regulations will provide the Korean tax authority with a foundation to create a legal framework for the taxation of digital assets. As a result, exchange firms will be obliged to provide the authorities with details of their customers and their records of purchases for tax purposes.

Korean exchanges to comply with new regulations by 2021

The South Korean government intends cryptocurrency exchanges to fully implement the new requirements by September of next year. Some provisions of the revised act can take up to 12 months to be fully implemented. The new apparatus could take another six months to come into effect.

According to Thumb’s head of compliance, Sungmi Lee, the lawmakers may further strengthen the rules in the future. He argued that the exchange expects much tougher regulations, and therefore needs to be armed with sufficient support before that. Korea’s exchange companies are required to report their activities to the country’s financial authorities. They are required to obtain the real name of the user from banks in the country. Failure to comply will result in an exchange being fined up to $42,000 in fines or a prison term of up to five years.

Additionally, the law requires all the exchange firms to have their infrastructure attested by Korean Internet Security Agency (KISA). Currently only four exchanges have completed the expensive and time-consuming KISA certification. Bithumb, Upbit, Coinwon, and Korbit are among the companies to have obtained this award.

Chainalysis to help Bithumb Strengthen its AML and CFT Practices

According to the chief revenue officer at Chainalysis, Jason Bonds: 

“As cryptocurrency use in South Korea continues to grow, new regulations such as this will make blockchain analysis solutions like Chainalysis vital for compliance.”

The high number of hacks in the country last year on cryptocurrency exchanges; called for the need for the government to introduce measures, in particular, to increase transparency. As a result, Bithumb aims to improve their AML and counter terrorism financing (CFT); with the support of the Government’s Chainalysis Reactor tool ahead of such initiatives.

South Korea is among the countries that have recently revised its domestic digital assets regulations to ensure they meet the standards set by the Financial Actions Task Force (FATF). During the past couple of days, Switzerland, South Korea, Singapore, The United Kingdom, Ukraine, Hong Kong, Dubai and Japan; have all amended their domestic cryptocurrency guidelines to meet the standards laid down by the G7’s FATF.

LATAM Exposes ‘The Dark Side’ of Cryptocurrencies

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To have a clear picture of the world’s worst money laundry schemes, new cybercrime frontiers, and organized crime, perhaps Latin America (LATAM) is the best specimen for you. 

In the midst of a major economic downturn, Latin American countries are facing the worst money laundering schemes as a result of the increase in cryptocurrencies and unregulated P2P exchanges, according to a new report by threat intelligence firm Intsights and Ciphertrace.

According to the report, organized crime groups and drug cartels in LATAM countries use cryptocurrencies such as bitcoin; to cover up their tracks or fund their evil schemes.

The study has deepened into the crime scene in Latin American nations, exposing the challenges faced by law enforcement to curb the threat.

In particular, one way for criminals in LATAM nations to use digital currencies is through ‘ mixing services ‘ to confuse tainted digital currencies with others. Once criminals clean crypto through mixing, they trade in different exchanges and earn further income.

As part of money laundering schemes, criminal groups and cartels are taking advantage of inadequate KYC and AML standards by local exchanges and global P2P networks such as LocalBitcoin.

In fact, the report argues that a massive amount of illicit digital currencies around the globe ends up in LATAM cryptocurrency exchanges. Researchers at Intsights have found that exchanges in the Latin part of the world are usually denoted by indulgent regulations.

The report relates to the big money laundry case involving the payment processing firm Crypto Capital. The Panama-based crypto company was involved in a money laundry case worth up to $350 million.

Panama-Based Crypto Capital Money Laundry Saga

According to reports, Ivan Manuel Molina Lee, President of Crypto Capital, was detained by the law enforcement authorities on the grounds that he was directly involved in the scheme.

Crypto Capital has been able to mislead one of the biggest exchanges in the world, Bitfinex. Colombian drug cartels used cryptocurrencies to launder at least $350 million.

Additionally, criminals in Latin America take advantage of the leniency of P2P platforms; such as LocalBitcoin and Paxful to compound their interests. As per the report, this is the most preferred way for LATAM criminals.

The LocalBitcoin P2P platform has the highest trading volumes in Latin America. This is mainly due to the lack of or minimal regulations such as lack of AML and little KYC requirements. The report reads:

“Threat finance is evolving in Latin America as organized crime groups turn to cryptocurrency to launder large amounts of money and dive into the dark web to find hackers for hire…criminals are taking advantage of unregulated exchanges that do not require registration information and proof of identification for tracking purposes. These illegal exchanges are appealing to criminal groups that are looking to move large amounts of money through untracked channels.”

At Least 70% of the LATAM Population is Online

Furthermore, the report notes that 69 percent of the Latin American population is online, a significant percentage. Majority of Internet users come from Colombia and Brazil. The rapid digitization capped by political and economic precariousness; has resulted in increased hacking, fraud, money laundry, drug cartels and other crimes in the region.

In Conclusion,  this massive hornet’s nest is unlikely to be resolved soon anytime; due to the lack of anti-money laundry legislation in place and the poor state of law enforcement at LATAM.

However, the report suggests that firms or agencies willing to thwart the problem; should  “collect, monitor, and analyze cybercrime intelligence,” to learn and adopt the best security protocols.

 

 

Disclaimer note: This article is based on the writer’s opinions/research and does not necessarily represent the views and opinions of Tron Weekly. 

US Presidential Candidate Michael Bloomberg Seeks to Create Crypto Regulatory Framework

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Recently reported, a 2020 US Presidential candidate Michael Bloomberg sees cryptocurrency as an asset class. In addition, he also mentioned his proposal for crypto regulation.

In a financial reform plan, published on Tuesday, founder and CEO of Bloomberg LP, Michael Bloomberg proposed a ‘regulatory framework on cryptocurrencies”.

His promise sounds similar to crypto-friendly views shared by Andrew Yang who unfortunately drops out of the presidential list on Feb 11.

Compared to anti-bitcoin views shared by Donald Trump last year, Yang stood strong for the crypto community. He showed pro-bitcoin and blockchain views which certainly impressed the entire crypto ecosystem.

Besides Yang, the other pro-crypto candidate, Eric Swalwell failed to proceed further. However, now Bloomberg is likely to be an impressive community by promising a ‘ clear regulatory framework for crypto. ‘Yang despite the tech background and support of the crypto community couldn’t make it and Bloomberg despite having the charge of sexism and racism is making his best to gain traction from the crypto industry.

In a report, he emphasized that digital assets have yet to be backed up by sensible regulations and stated that it will work ‘ with regulators to prove clearer rules ‘ including rules to protect consumers from crypto-fraud, crypto-asset taxation, securities, and requirements for financial entities holding cryptocurrencies.

“Cryptocurrencies have become an asset class worth hundreds of billions of dollars, yet regulatory oversight remains fragmented and undeveloped. For all the promise of the blockchain, Bitcoin and initial coin offerings, there’s also plenty of hype, fraud and criminal activity.

More so, when Facebook announced its plan to launch Libra, Congress has had a strict eye on how a crypto asset will be the threat for sovereign currency, US Dollar. In fact, the social media giant is yet to launch its over-hyped stable coin as it is yet to clear the several criticizing factors shared by regulators across the world, majorly US regulators.

More so, Bloomberg’s proposal towards the crypto industry impressed crypto enthusiasts, namely Binance boss Changpeng Zhao (CZ) who then took to Twitter and write ‘Go, man’. CZ, the founder of Binance crypto exchange has worked at Bloomberg 15 years ago and henceforth, it comes as an exciting note for him. Nevertheless, CZ tweeted as follows;

Go, man! I remember BLOOMBERG as a leading Fintech company when I worked there 15 years ago. We had servers so big that they are called BIGs. I (my team) owned the FutBig (Futures BIG server). We proposed to call it the FuBig first but went with FutBig in the end.