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Cryptocurrency exchanges will share their clients' information

4 min reading

New recommendations regarding the regulation of virtual assets have finally been implemented. From now on, the cryptocurrency exchanges will have to share their clients' data.

New FATF regulations

The intergovernmental organization, FATF (Financial Action Task Force), has introduced its new recommendations regarding the regulation of cryptocurrency exchanges in 37 countries. The new standards require virtual asset service providers (including cryptocurrency exchanges) to share data about their clients. The information should concern the transfer of funds between companies. The final version of the recommendation, published by Coindesk, states:
"[...] obtain, store required and accurate information about the sender and required information about the recipient and send information to the beneficiary's institutions, [...] if they exist. In addition, countries should ensure that beneficiaries [...] obtain and have the required (not necessarily accurate) information about the initiator as well as the required and accurate information about the beneficiaries."
According to the document, the required information for each transfer includes:
  • name of the initiating unit (client sending the funds)
  • the initiator's account number used to process the transaction
  • the physical address of the initiator or the national identification number
  • the name of the beneficiary
  • the beneficiary's account number used to process the transaction

Recommendation enforcement

According to the guidelines, people using cryptocurrency wallets can be designated as VASP (Virtual Asset Service Providers). Such people will be subjected to licensing requirements - at least if the transactions take place for business purposes. Individuals are not considered VASP if they make a one-off transfer of funds or use cryptocurrencies to buy goods or services.
"In cases in which VASP is a natural person, they should be required to have a license or register the jurisdiction in which the place of business is located. [...] However, a person who is not doing business on their behalf or on behalf of another natural or legal person [...] (e.g. a natural person who obtains virtual assets and uses them to buy goods or services on their own behalf or make a one-time exchange or transfer) is not VASP."
The FATF recommends that countries consider the use of open source information and online screen scraping tools. These activities are aimed at identifying unregistered or unlicensed operations. Authorities should also analyze feedback from the public or "information not available to the public", such as intelligence reports.

Cryptocurrency exchanges will act as banks

The so-called travel rule, which consists of sharing information about clients, is a known requirement among international banks. Supporters of the blockchain industry are against new rules. They argue that they are harmful to the privacy of users, and perhaps even impossible to implement by the cryptocurrency exchanges. Chainalysis, a data analysis company, warned that instead of more transparency, standards could lead to reduced user control. However, despite these concerns, during the consultation meeting in the private sector in Vienna last month, the organization went a step further:
"By adopting the standards and guidelines agreed this week, the FATF will ensure that virtual asset service providers do not operate in the dark. [...] We will not allow the cryptocurrency to become the equivalent of secret numbered accounts, we will allow proper use, but we will not tolerate illegal activities"
That's what the US Treasury Secretary Steven Mnuchin, said about new FATF standards. Other supporters of new recommendations are also appearing. During the meeting in Fukuoka, finance ministers and heads of central banks from the G20 group also expressed their support for FATF standards. Perhaps during the forthcoming G20 summit, the issue of adoption of recommendations will be discussed in more detail by member countries.
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