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New FATF cryptocurrency regulate guidance is totally disaster!

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Nishizawa

New member
The FATF published a draft of the regulatory proposal to be discussed at a meeting in June.
https://www.fatf-gafi.org/publicati...uments/public-consultation-guidance-vasp.html

Ciphertrace explained that the proposed regulation implies the inclusion of DEX in VASP and requiring enhanced AML for peer-to-peer transactions.
Analysis: Proposed FATF Guidance for Virtual Assets and VASPs




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"56. Exchange or transfer services may also occur through so-called decentralized exchanges or platforms. “Decentralized or distributed application (DApp),” for example, is a term that refers to a software program that operates on a P2P network of computers running a blockchain protocol—a type of distributed public ledger that allows the development of other applications. These applications or platforms are often run on a distributed ledger but still usually have a central party with some measure of involvement, such as creating and launching an asset, setting parameters, holding an administrative “key” or collecting fees. Often, a DApp user must pay a fee to the DApp, which is commonly paid in VAs, for the ultimate benefit of the owner/operator/developer/community in order to develop/run/maintain the software. DApps can facilitate or conduct the exchange or transfer of VAs.



57. A DApp itself (i.e. the software program) is not a VASP under the FATF standards, as the Standards do not apply to underlying software or technology (see below). However, entities involved with the DApp may be VASPs under the FATF definition. For example, the owner/operator(s) of the DApp likely fall under the definition of a VASP, as they are conducting the exchange or transfer of VAs as a business on behalf of a customer. The owner/operator is likely to be a VASP, even if other parties play a role in the service or portions of the process are automated. Likewise, a person that conducts business development for a DApp may be a VASP when they engage as a business in facilitating or conducting the activities previously described on behalf of another natural or legal person. The decentralization of any individual element of operations does not eliminate VASP coverage if the elements of any part of the VASP definition remain in place.



58. Other common VA services or business models may also constitute exchange or transfer activities based on items (i), (ii), and (iii) of the VASP definition, and the natural or legal persons behind such services or models would therefore be VASPs if they conduct or facilitate the activity as a business on behalf of another person. These can include:

a) VA escrow services, including services involving smart contract technology, that VA buyers use to send or transfer fiat currency in exchange for VAs, when the entity providing the service has custody over the funds;

b) brokerage services that facilitate the issuance and trading of VAs on behalf of a natural or legal person’s customers;

c) order-book exchange services, which bring together orders for buyers and sellers, typically by enabling users to find counterparties, discover prices, and trade, potentially through the use of a matching engine that matches the buy and sell orders from users (although a platform which is a pure-matching service for buyers and sellers of VAs and does not undertake any of the services in the definition of a VASP would not be a VASP); and

d) advanced trading services, which may allow users to access more sophisticated trading techniques, such as trading on margin or algorithm-based trading.


79. The determination of whether a service provider meets the definition of a VASP should take into account the lifecycle of products and services. Launching a service that will provide VASP services, for instance, does not relieve a provider of VASP obligations, even if those functions will proceed automatically in the future, especially but not exclusively if the provider will continue to collect fees or realize profits, regardless of whether the profits are direct gains or indirect. The use of an automated process such as a smart contract to carry out VASP functions does not relieve the controlling party of responsibility for VASP obligations. For purposes of determining VASP status, launching a self-propelling infrastructure to offer VASP services is the same as offering them, and similarly commissioning others to build the elements of an infrastructure, is the same as building them. "


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So, no matter what technology you use, DEX, Dapps, and Defi are included in the regulatory radar if someone benefits from a fee. Reward is indispensable to maintain DEX. Therefore, most DEXs such as makerDAO, Uniswap, Bisq all require KYC and AML procedures.
This FATF guidance could "wreak havoc" for Uniswap operators

P2P exchanges that provide order book service and escrow are also regulated.

The FATF also identified peer-to-peer trading as a high-risk activities and recommended further action.




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P2P transactions 91.

Countries should also seek to understand the ML/TF risks related to P2P transactions and how P2P transactions are being used in their jurisdiction. Countries may consider the following non-exhaustive list of options to mitigate risks posed by P2P transactions at a national level if the ML/TF risks are unacceptably high. This includes measures that seek to bring greater visibility to P2P transactions, as well as to limit jurisdiction’s exposure to P2P transactions.

These measures may include:

a) controls that facilitate visibility of P2P activity and VA activity crossing between obliged entities and non-obliged entities (these controls could include VA equivalents to currency transaction reports or reporting of cross-border instrument transfers);

b) ongoing enhanced supervision of VASPs and entities operating in the VA space with a feature enabling unhosted wallet transactions (e.g., on-site and off-site supervision to confirm whether a VASP has compiled with the regulations in place concerning these transactions);

c) denying licensing of VASPs if they allow transactions to/from non-obliged entities (i.e., private / unhosted wallets) (e.g., oblige VASPs via the ‘travel rule’ to accept transactions only from/to other VASPs);

d) placing additional AML/CFT requirements on VASPs that allow transactions to/from non-obliged entities (e.g. enhanced recordkeeping requirements, enhanced due diligence (EDD) requirements); and

e) guidance highlighting the importance of VASPs applying risk-based approach to dealing with customers that engage in, or facilitate, P2P transactions, supported by risk assessment, indicators or typologies publications where appropriate.


92. Additional measures that countries may wish to consider assist in understanding and mitigating the risks of P2P transactions include:

a) outreach to the private sector, including VASPs and representatives from the P2P sector (e.g. consulting on AML/CFT requirements concerning P2P transactions);

b) issuing public guidance and advisories and conducting information campaigns to raise awareness of risks posed by P2P transactions; and

c) training of supervisory, FIU and law enforcement personnel.


151. In the context of VA and VASP activities, countries should ensure that VASPs licensed by or operating in their jurisdiction consider whether the VASP can manage and mitigate the risks of engaging in activities that involve the use of anonymity-enhancing technologies or mechanisms, including but not limited to AECs, mixers, tumblers, and other technologies that obfuscate the identity of the sender, recipient, holder, or beneficial owner of a VA. If the VASP cannot manage and mitigate the risks posed by engaging in such activities, then the VASP should not be permitted to engage in such activities


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Anyone who wants to transact with a private wallet must perform an enhanced due diligence (EDD), or VASP must simply prohibit transfers to a private wallet. The meaning of high-risk trading said by FATF is the same as saying don't do XXX. In terms of derisking, many exchanges will be banning private wallets. I have already seen such an exchange.

The craziest part is this.



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178. Similar to wire transfers between FI(Financial institution)s, there may be VA transfer scenarios, either now or in the near-future, that involve “intermediary VASPs” or other intermediary obliged entities or FIs that facilitate VA transfers as an intermediate element in a chain of VA transfers. Countries should ensure that such intermediary institutions (whether a VASP or other obliged entity) also comply with the requirements of Recommendation 16, as set forth in INR. 15, including the treatment of all VA transfers as cross-border qualifying transfers. Just as a traditional intermediary FI processing a traditional fiat cross-border wire transfer must ensure that all required originator and beneficiary information that accompanies a wire transfer is retained with it, so too must an intermediary VASP or other comparable intermediary institution that facilitates VA transfers ensure that the required information is transmitted along the chain of VA transfers, as well as maintaining necessary records and making the information available to appropriate authorities upon request. Similarly, where technical limitations prevent the required originator or beneficiary information from remaining with a required data submission, a record should be kept, for at least five years, by the receiving intermediary VASP of all the information received from the ordering VASP or another intermediary VASP. Intermediary institutions involved in VA transfers also have obligations under Recommendation 16 to identify suspicious transactions, take freezing actions, and prohibit transactions with designated persons and entities—just like ordering and beneficiary VASPs (or other ordering or beneficiary obliged entities that facilitate VA transfers).

179. The FATF recognizes that unlike traditional fiat wire transfers, not every VA transfer may involve (or be bookended by) two obliged entities, whether a VASP or other obliged entity such as a FI. In instances in which a VA transfer involves only one obliged entity on either end of the transfer (e.g., when an ordering VASP or other obliged entity sends VAs on behalf of its customer, the originator, to a beneficiary that is not a customer of a beneficiary institution but rather an individual VA user who receives the VA transfer to an unhosted wallet), countries should still ensure that the obliged entity adheres to the requirements of Recommendation 16 with respect to their customer (the originator or the beneficiary, as the case may be). Countries should also consider requiring VASPs to treat such VA transfers as higher risk transactions that require enhanced scrutiny and limitations.

180. The FATF does not expect that VASPs and FIs, when originating a VA transfer, to submit the required information to individuals who are not obliged entities. VASPs receiving a VA transfer from an entity that is not a VASP or other obliged entity (e.g., from an individual VA user to an unhosted wallet), should obtain the required originator and beneficiary information from their customer. Countries should require their VASPs or other obliged entities to implement mechanisms to ensure effective scrutiny of suspicious activity reporting and to meet the requirements of sanctions implementation (see the discussion of Recommendation 20 below) and as discussed above may choose to impose additional limitations, controls, or prohibitions on unhosted wallets.

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FATF wants regulated intermediaries like SWIFT for crypto transactions. For that, they recommended to limit or ban private wallets. Their purpose is to embed cryptocurrency into traditional financial systems, and ruin decentralization. What's the value of crypto if you only have to send funds through regulated institutions like Paypal or bank?

This is a draft. In theory, it could be revised until June. But you know, FATF is a puppet financial terrorist organization controlled by the US gov. I am pessimistic about the situation because the US gov is still negative for the decentralized financial system.
 
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Martin Everson

Offshore Retiree
Staff member
Mentor Group Gold
Elite Member
Seems like easiest and most cost effective way for exchanges to implement such AML is for exchanges is to move to the model that Revolut has. With Revolut you can buy and sell crypto but cannot deposit or transfer crypto i.e they hold and control all the crypto in their wallet. Alternatively one can just buy a crypto ETF from i.e Coinshares to get access to at least BTC and ETH. I don't think the same AML will apply to an ETF :confused:.
 

Golden Fleece

Active Member
I am pessimistic about the situation because the US gov is still negative for the decentralized financial system.
If you are only pessimistic about the situation then you are quite the optimist. Anyone that believes that the world's governments will not eventually heavily regulate, if not close down, the cryptocurrency exchanges is ignorant of world history. As soon as it poses an imminent threat to the status quo, it will happen. Count on it.
 

JackAlabama

Entrepreneur
If you are only pessimistic about the situation then you are quite the optimist. Anyone that believes that the world's governments will not eventually heavily regulate, if not close down, the cryptocurrency exchanges is ignorant of world history. As soon as it poses an imminent threat to the status quo, it will happen. Count on it.
It is very clear what they want to do which I wrote here time ago as well.
They build a wall around your crypto such that you do not have possession of it. Similar to you not being able to withdraw cash from your bank accounts.

"Welcome to your free world, slaves. You better like what I offer you."

Govs will eventually fall as well if you look at world history. With many of the fatf lovers having debt levels above their eyeballs, they hopefully fall sooner than later.
The regulation in just the last 5 years has just become crazy.
 

Martin Everson

Offshore Retiree
Staff member
Mentor Group Gold
Elite Member
"Welcome to your free world, slaves. You better like what I offer you."

At some point you will not be able to cut ties with your home country without paying off your share of the national debt smi(&%. So for example UK population is around 63m and national debt around 2.4bn GBP hence it will cost you 38,095 GBP to escape the UK - laugh now and cry tomorrow.

2,400,000,000,000 / 63,000,000 = 38,095 GBP

Anyway the regulation around crypto defeats the whole point of owning any of it. It will be added to CRS at some point so exchanges will be forced to report like banks.
 

JackAlabama

Entrepreneur
At some point you will not be able to cut ties with your home country without paying off your share of the national debt smi(&%. So for example UK population is around 63m and national debt around 2.4bn GBP hence it will cost you 38,095 GBP to escape the UK - laugh now and cry tomorrow.

2,400,000,000,000 / 63,000,000 = 38,095 GBP

Anyway the regulation around crypto defeats the whole point of owning any of it. It will be added to CRS at some point so exchanges will be forced to report like banks.
That is a great idea. I am sure the communists love this. ;)
 

platne

New member
Governments can attempt - and granted, succeed - to regulate cryptocurrencies at the edge of the network, where the on- and off-ramps interface with the legacy global banking system.

The global network itself, however, cannot be stopped. There is no example of any decentralized technology that was successfully censored or otherwise stopped.
 
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