On the 22nd of February 2019, the Financial Action Task Force (FATF) which is a transnational organization published a statement suggesting a few recommendations that governments could employ to more successfully monitor cryptocurrency transactions as a way to completely stop or at least significantly reduce the possibility of illicit use of crypto.
The FATF which is an establishment specifically focused on fighting financial crime published the statement called
“Mitigating Risks from Virtual Assets”
“more detailed implementation requirements for effective regulation and supervision/monitoring of virtual asset services providers.”
However, Chainalysis in the last few days has responded in their own publication that some of the measures are largely impractical and could negatively affect the industry. Chainalysis, which is a blockchain analysis firm, has expressed that taking the FATF’s recommendations could cause exchange firms to eventually shut down.
One of the suggestions put forward in the FATF’s document about Virtual Assets Service Providers (VASP) expects that these service providers should compulsorily hold information regarding transaction originators and the government should also have access to this information.
According to the FATF:
“countries should ensure that originating VASPs obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts (if any), and make it available on request to appropriate authorities.”
Chainalysis’ response which was written by Jonathan Levin (COO) and Jesse Spiro (Global Head of Policy) explained that apart from anonymity, the people who initiate or receive these transactions use services and wallets that might be incapable of even sending or receiving this “required” data. For them, there is simply no need as
“virtual assets are designed to provide a way to move value without the need to identify the participants in a transaction.”
Furthermore, it would simply be impossible to ask these things of VASPs because their platforms do not allow for the exchange of this kind of information and trying to change how the blockchain technology works, especially regarding this, is a pipedream at best.
“Forcing onerous investment and friction onto regulated VASPs, who are critical allies to law enforcement, could reduce their prevalence, drive activity to decentralized and peer-to-peer exchanges, and lead to further de-risking by financial institutions. Such measures would decrease the transparency that is currently available to law enforcement.”
Alternative Measures Suggested By Chainalysis
Other suggestions were made in Chainalysis’ publication that doesn’t considerably dent the anonymity offered by the VASPs and blockchain technology in general. Jonathan Levin and Jesse Spiro both suggested that the exchange firms could proceed to store Know Your Customer (KYC) information on their own servers. That way, if there’s ever a real need for this information by law enforcement, they could easily assess it in investigations or just to help avert unscrupulous transactions.
This was probably suggested because Chainalysis has in the past, contributed to different official inquiries and investigations to determine who owns what wallets and assets that may have been a part of some illicit transactions.
Another measure suggested by Chainalysis involves making sure VASPs employ a programmed system that checks for illegal activity on its own. The statement said:
“Originator VASPs should screen destinations for known illicit activity using an automated monitoring system and manage a customer due diligence (CDD) program for transactions that trigger risk thresholds based on detected illicit activity.”
It is expected that the FATF’s recommendations will become globally official by June if all goes well. For now, not a lot can be said about what will eventually happen.