Crypto is approaching one of the most critical, and potentially destructive, moments in its history: and very few people even seem to know about it. At least, that’s according to Joseph Weinberg, co-founder of Shyft Network and a long-time player in the space.
Weinberg, who is also a special advisor on blockchain issues to the OECD, believes that a new implementation note from the Financial Action Task Force (FATF) could radically change how the crypto industry operates.
The new standard will apply FATF’s Recommendation 16, which requires banks to share customer information, to any virtual asset service provider (VASP) involved in trading or transmitting virtual currencies. FATF is expected to ratify the recommendation by the end of June.
The recommendation could require wallet providers and exchanges to share data about their customers with one another; personal data might have to be embedded into transactions on public blockchains. “There will be no right to be forgotten,” Weinberg told Crypto Briefing. “Your data will be completely public for all to see.”
That has serious ramifications outside of data privacy. The FATF recommendation could effectively push regulation-abiding cryptocurrency businesses out of compliance.
Data privacy laws, like GDPR in the EU, mandate that users own their own data. But it will become impossible for exchanges to give users control over their own data while simultaneously following the new FATF recommendation, according to Weinberg.
“The only actors that’ll remain compliant are the banks,” said Weinberg. They already have the infrastructure in place to continue operating without any significant disruption if the new recommendation becomes ratified.
“This will push Bitcoin back to the dark ages,” Weinberg added.
What is FATF?
FATF is focused on coordinating action to combat international money laundering and terrorist financing. Among its thirty-six members are some of the world’s largest economies and trading blocs, including the US, China, India as well as the European Commission.
There have been efforts by some industry representatives to delay the new implementation. Last month, hundreds of industry representatives, including compliance officers at Elliptic and Diginex, went to FATF’s headquarters in Vienna to try to make their case.
But Weinberg says these efforts lacked the backing of big players as well as support from the community. “What’s worse is that the space doesn’t even know this is even happening,” he added.
Because FATF has jurisdiction in almost all of the world’s leading economies and trading blocs, there will be little chance for “regulatory arbitrage,” the strategy of moving to the country with the friendliest regulations.
FATF’s cryptocurrency recommendation is unpopular
The Electronic Money Association (EMA), which promotes fintech in Europe, has already expressed concerns that the new standard could hold back the unique advantages of blockchain technology.
“We therefore have concluded that it would not be appropriate to apply Recommendation 16 to VASPs and virtual assets and urge the FATF to re-think its approach,” the trade body wrote in a note last month.
Even entities ostensibly on FATF’s side have expressed concern over the new requirement. Chainalysis, which provides surveillance techniques to track illegal activity on the blockchain, filed a public letter in April arguing that the industry does not have the infrastructure required to meet the recommendations.
Restrictive regulation has a clear impact on the health of the industry. Payments platform Circle, backed by Goldman Sachs, had to lay off 30 members of staff recently. Uncertainty and possible restrictions in the U.S. meant the company had no choice but to take this “deeply frustrating step,” said CEO Jeremy Allaire in a blog post.
It’s very like that the recommendation will now go through. One source, who declined to be identified, said that the FATF’s refusal to at least re-consider the recommendation is no coincidence. They suggested that the current FATF President, U.S. Treasury official Marshall Billingslea, is attempting to push through the bill before his term ends on June 30th.
Although there are procedures in place to change or amend FATF requirements after they have been implemented, this is exceedingly hard to do.
Any action now will be too little, too late, Weinberg says: and the industry will likely have to come to terms with the new reality.