Crypto Firms Assess How to Comply With Anti-Money-Laundering Standards
18 Sep 2019

The cryptocurrency industry is rushing to comply with new anti-money-laundering standards that require exchanges and other firms to share information about their customers.

The standards, adopted in June by the Financial Action Task Force, require cryptocurrency exchanges, some digital wallet providers and other firms to send customer data—including names and account numbers—to institutions receiving transfers of digital funds, similar to a wire transfer at a bank. The goal of the so-called travel rule is to help law enforcement track suspicious activity. The FATF is the global standard-setter for anti-money-laundering.

But figuring out how to comply with the standards has been something of a puzzle. Crypto firms don’t have the infrastructure in place to send customer data to each other, industry executives say. There is also the challenge of getting firms in a decentralized industry to reach a consensus on how a system for sharing information should be paid for and governed.

“Is it solvable? Yes,” said Jeff Horowitz, chief compliance officer at the digital currency exchange Coinbase. “But is there a method that exists today to share this data? No.”

Mr. Horowitz—who last year joined the San Francisco exchange from Pershing LLC, a unit of Bank of New York Mellon Corp. —described compliance with the travel rule as one of his top priorities. Coinbase is participating in working groups with other exchanges to develop a plan for compliance, he said.

Under the FATF guidelines, crypto firms must transmit customer data to other financial institutions when transferring $1,000 or more. A similar rule has been in place for U.S. financial institutions since 1996.

The FATF, created 30 years ago by the Group of Seven leading nations, conducts regular evaluations of anti-money-laundering laws in its 37 member countries. Receiving a negative evaluation can be embarrassing or, if the violations are severe enough, can restrict a country’s access to the financial system. The U.S. Treasury Department has said the travel rule applies to crypto firms.

The FATF guidelines are intended to prevent regulatory arbitrage across the globe, and to encourage countries to strengthen their cryptocurrency regulations.

“What we are doing is really providing a level playing field,” said Tom Neylan, senior policy analyst at the FATF.

The travel rule also is intended to provide an audit trail that investigators could use in the aftermath of a terrorist attack, and give regulators a tool to implement targeted sanctions, Mr. Neylan said.

The challenge facing the industry is to develop an approach for sending and receiving customer data safely and in a standardized way. Executives say they are meeting regularly, participating in working groups and evaluating proposals from technology providers.

By Kristin Broughton, The Wall Street Journal, 16 September 2019

Read more at The Wall Street Journal

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