Regulations on Crypto and Libra’s compliance

Crypto’s nature is what sets it attractive in being unregulated and free from legal demands and norms. However, day by day and as crypto dives deeper into the current updates on finance and industry, it is imperative that it complies with reasonable rules and regulations.

Although currently there are fragments in regulating crypto, there have been suggestions which encourage a global regulatory framework which should be embraced and welcomed.

The International Monetary Fund (IMF), published a document on July 2019 which contained important typology on the risks that are introduced by using unregulated digital currency. What was further included in the document are the liquidity risk, default risk, market risk and foreign exchange risk.

It is also underlined that it becomes difficult for crypto exchanges to be in compliance with Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations if the assets produced are generated by decentralized technology and the stakeholders come from various jurisdictions.

However, not only concerns are reported, but also solutions are provided. Central banks could provide issuers with stablecoins with access to central reserves, preventing monopoly from happening and protecting monetary policy, so they consider issuing their own digital currency.

What could Central Banks also do, is to grant licenses and hold virtual asset service providers (VASPs) accountable for customer screening, transaction monitoring and reporting suspicious activity in accordance with KYC (Know Your Customer), AML and CFT regulations.

More specifically, in July, UK’s Financial Conduct Authority (FCA) published two relevant documents on the matter. “Guidance on Cryptoassets” was the first one which aimed to make a clear distinction between exchange tokens, utility tokens and security tokens and at the same time realizing that some may be included in more than one, categories. The second document introduces rules in order to ban the sale of crypto derivatives to retail investors on being less equipped to assess the risks of this type often volatile financial products.

It is a fact that UK’s approach is very similar to other jurisdictions like Singapore, Hong Kong and even the USA where attention is mostly dedicated on tokens which offer securities.

What is more, the documents include clear guidance regarding the regulatory status of crypto assets aiming to balance between leaving space for financial innovation and ensuring retail investor protection.

Libra cannot be ignored when discussing this issue, as it has elevated the discourse about what governments should do concerning cryptocurrencies and according to some, it has moved crypto at least three years ahead.

It has been reported that Facebook’s Libra caused renewed interest in digital exchange and blockchain and with appropriate regulation it can provide meaningful benefits.

According to the United States Treasury Under Secretary of Terrorism and Financial Intelligence Sigal Mandelker, Libra must comply with the AML and terrorism financing standards.

Mandelker’s suggestions were reported on September the 10th.

The report suggests that cryptocurrencies operating in the States, including Libra must comply with local regulatory standards.

After visits to Switzerland to investigate the issue, it has been reported that the concerns were not smoothened.

On top of everything, the Governor of the Bank of England suggested transforming the global financial system and replacing the US dollar with a digital currency similar to Facebook’s Libra.

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Published on: 13/09/19