The first inaugural V20 Summit has concluded with all attendees committed to working with regulators to implement FATF guidelines, as feasibly possible and to work on solutions for areas that are not so easily accommodated by existing technology. The quickly arranged conference, which coincided with the G20 Summit in Osaka, Japan, was billed as an opportunity for crypto exchange executives to take the first steps toward working with finance leaders and global policymakers to find an acceptable way to implement the new guidelines published by the Financial Action Task Force (FATF).
As we recently reported: “The most offensive section of these new rules, as seen from the perspective of executives in the crypto industry, attacks the anonymity nature of the Crypto-verse and proposes information needs that, despite being advised as to the infeasibility of their proposals, are unworkable, given the technicalities of today’s technology.” The goal of the meeting was to initiate a dialogue with G20 financial ministers, who tend to be national regulators, and to establish a working group to develop solutions that benefit the information needs of all participants.
Ronald M. Tucker, convenor of the V20 and founder of the Australian Digital Commerce Association (ADCA), and the V20 group announced that: “A group of national trade associations representing virtual asset service providers (VASPs) signed a Memorandum of Understanding (MOU) to establish an association to provide a global unified voice for the virtual asset industry. We’ve brought everyone on the journey to create a new body that will assist in establishing a means to engage with government agencies and the FATF to ensure our best interests are understood and valued at an international level.”
Tucker went on to explain that: “The agreement signals a commitment to develop a cooperative regime to underpin dialogue with government and regulators to promote VASP. In addition to supporting industry-wide information exchange and best practice and an increased awareness of the industry and its economic value, it promotes and facilitates compliance with global industry standards.”
V20 Summit attendees represented a diverse group of crypto participants
As reported, the signatories include the ADCA, Singapore Cryptocurrency and Blockchain Industry Association (ACCESS), Japan Blockchain Association (JBA), Korean Blockchain Association (KBCA), Hong Kong Blockchain Association (HKBA) and Taiwan Parliamentary Coalition for Blockchain & Industry Self-Regulatory Organization. A former FATF president, Roger Wilkins AO, witnessed the signing ceremony.
Attendees at the V20 Summit also included a number of major cryptocurrency exchanges, media outlets, law firms, and other crypto service providers: Bitfinex, Circle, Coinbase, Huobi, Kraken, Okcoin, Coins.ph, B2c2, Bitcoin.com, Bitcoin Australia, Crypto Garage, Deloitte, Diginex, Norton Rose Fulbright, Sentinel Protocol, Anderson Mori & Tomotsune, and Pwc. Several regulated crypto exchange operators in Japan also participated such as Bitflyer, Bitpoint, Coincheck, Huobi, Rakuten Wallet, and SBI Group.
Industry spokesmen spoke to the inconsistencies in FATF guidelines
Roger Wilkins AO, an ex-FATF President and former secretary Australian Department of the Attorney General, remarked before and during the summit: “What we are hearing from industry is that the new rules may have the opposite effect to which they were intended, effectively forcing crypto transactions off the controlled platforms, which are currently one of the best avenues we have in gaining visibility over financial crime.”
The response from V20 industry participants was that: “Applying these requirements could result in potential unintended consequences, including encouraging P2P transfers via non-custodial wallets, which are significantly harder for law enforcement to track or control.”
Daniel Kelman, Bitcoin.com’s resident legal advisor, spoke at the V20 and shared a few of the inconsistencies that FATF officials had not understood. Here are a few of his comments:
- “In essence, the FATF wants VASPs to be regulated and only licensed and regulated exchanges could participate in a SWIFT-like network for payments between VASPs. Of course this makes no sense, since this is not how crypto works. No one uses an exchange to send money, they’ll withdraw to their own wallet and send it anywhere;”
- “One quote from a regulator stands out: ‘combating money laundering will always trump innovation and financial inclusion.’ I couldn’t disagree more;”
- “Most importantly, it was clear FATF did not know much about our industry and were just forcing bank rules cookie-cutter style onto crypto. Case in point was my discussion about using the public ledger to assess risk as opposed to the ‘Travel Rule,’ which is basically impossible for crypto exchanges to implement. I raised the prospect of blockchain analysis to achieve the same result and they were dumbfounded, had never even considered this. The conference was not really about debating these rules. They were essentially forced on us, and they wanted to use this event to try to claim ‘consensus’ that they were fair and valid.”
The “Travel Rule” was highlighted before the meeting as one of the more controversial proposals by the FATF. Chainalysis, as respected crypto research firm, had counseled the FATF during its development phase, but its final guidelines, according to Chainalysis, did not take into account its recommendations. The firm claimed that there would be “challenges to implementing the FATF standards”, as written.
Recommendation 16, which mirrors the Travel Rule in the U.S., requires VASPs to send originator and beneficiary information to other VASPs or financial institutions involved for transactions over 1,000 EUR/USD. The intent of the rule is clear – remove the anonymous character of blockchain transactions to ensure compliance with applicable AML and CFT standards across the globe and aid law enforcement in the performance of its investigative duties.
FATF representatives also spoke at the V20 Summit
FATF Secretariat Tom Neylan spoke to V20 delegates and provided a review of the new guidance for VASPs. He emphasized the importance of regulation, and that: “At the current stage, we are still looking for an appropriate regulatory framework relating to cryptocurrency, which would include not only centralized exchanges, but also decentralized exchanges and P2P transactions. The regulation on the virtual currency industry is not a ‘monster’ that causes panic. If implemented, the virtual currency market will become more open.”
After the FATF guidelines had been released, Jake Chervinsky, a lawyer specializing in crypto matters, pointed out that the money-laundering watchdog simply “makes recommendations, not laws,” reminding everyone that the organization “doesn’t have any regulatory authority of its own.” He also noted: “Member countries can adopt all, some, or none of FATF’s recommendations. There are basically no repercussions for not adopting (or for violating) FATF recommendations.”
A word about self-regulatory bodies and the FATF
Takato Fukui, Director General of the Japan Virtual Currency Exchange Association (JVCEA), also spoke to V20 attendees. Japan, the host country, is unique in that its regulator, the Financial Services Agency (FSA), has chosen to go the self-regulating route and last October appointed the JVCEA to be the self-regulatory organization (SRO) for the crypto industry.
The FATF, however, was very specific in its new guidance: “Only competent authorities can act as VASP supervisory or monitoring bodies, and not self-regulatory bodies.” The FSA is currently in discussions with the JVCEA on self-regulation: “We expect that through self-regulation, clearer and more detailed rules will be provided as to provisions that are not specified under the existing laws/regulations, as well as self-discipline in areas that are not covered by the laws and regulations.”
V20 Summit concludes on a positive note for the future of the crypto industry
Not all exchanges are opposed to the new FATF guidelines. Huobi Global, which also attended V20 Summit, openly embraces the FATF standards: “The crypto industry should embrace industry standards & compliance. FATF’s guidelines are a chance to develop progressive industry standards, create innovative tech that weeds out abuse while preserving access for legitimate actors, and more.”
Elaine Sun Ye Lin, Huobi’s Head of Compliance, remarked: “We see this as the starting point in an ongoing conversation between the cryptocurrency industry and G20 regulators … we believe direct dialog with FATF will help clarify the unique nature of the crypto industry and allow us to find industry-wide solutions to the problems we face.”
Huobi Global CEO Livio Weng added: “While it’s true these changes do present a challenge to the industry in terms of immediate implementation, they present real opportunities as well. This is a chance for us to develop industry standards to promote growth and protect user rights, develop technology to identify and weed out the bad while preserving the access for legitimate users, and to develop our ability to respond as a community to the issues that the cryptocurrency and blockchain industries face.”
The inaugural V20 Summit is now in the history books, and, for all intents and purposes, it seemed to achieve its initial objectives. A conversation between crypto executives and government officials and policymakers has begun in earnest. There will be a unified voice that speaks on behalf of the crypto industry “to engage with government agencies and the FATF to ensure our best interests are understood and valued at an international level”, and to support “industry-wide information exchange and best practice and an increased awareness of the industry and its economic value, as it promotes and facilitates compliance with global industry standards.” Now, let progress begin.