A landmark decision was made on June 21 by the intergovernmental Financial Action Task Force (FATF) forcing cryptocurrency exchanges to share user data.
The FATF, which includes 37 member countries, made the ruling as part of a series of recommendations to improve cryptocurrency regulations around the globe. The group cites the necessity to combat money laundering as their primary motivation, although free-market and privacy advocates are pushing back against the controversial decision.
According to the new requirement, all “virtual asset service providers” (VASPs) – including cryptocurrency exchanges – will be required to share customer information when clients move funds between firms.
The proposal, originally made in February, has been made official by the FATF and states businesses must:
obtain and hold required and accurate originator information and required beneficiary information and submit the information to beneficiary institutions…Further, countries should ensure that beneficiary institutions … obtain and hold required (not necessarily accurate) originator information and required and accurate beneficiary information
User Privacy Compromised
The specifics of the proposal require exchanges to share client data, including name, account number, physical address or customer identification (which could include date of birth).
While the FATF claims to be working towards anti-money laundering–lumping crypto in as a “threat of criminal and terrorist misuse of virtual assets”–the decision is a blow for those using cryptocurrency exchanges anonymously and for privacy.
The ruling will necessitate exchanges to extract even more user data to remain in compliance and may create barriers for crypto-asset transfers between platforms.
FATF Ruling Could Lead to Less Transparency
Chainalysis, a leading data anlytics firm, published a report in April claiming that the FATF’s decision would ultimately lead to less transparency:
Forcing onerous investment and friction onto regulated businesses, who are critical allies to law enforcement, could reduce their prevalence, drive activity to decentralized and peer-to-peer exchanges, and lead to de-risking by financial institutions. Such measures would decrease the transparency that is currently available to law enforcement.
The FATF’s decision may lead to greater use of decentralized-exchanges, which can operate in a non-custodial fashion, and therefore not qualify as a VASP, bypassing regulatory hurdles.