Global Watchdog Issues New Reporting Guidelines for Bitcoin and Altcoin Transactions Affecting Crypto Exchanges, Custodians, Hedge Funds and Traders

In a coordinated effort to fight illegal activity, governments are planning a new approach to rein in cryptocurrency exchanges, custodians and their clients.

The Financial Action Task Force (FATF), an intergovernmental agency that develops policies to combat money laundering, is implementing new guidelines for crypto exchanges. Although not legally binding, recommendations will impact how exchanges and related businesses operate and how personal information of crypto investors and traders is distributed and reported.

Crypto exchanges are now tasked with sharing customer information.

Announced on Friday at the close of the 2019 Orlando Plenary of the FATF, crypto transactions that are made between “virtual asset service providers” (VASPs), including exchanges, should include detailed information about the sender and recipient.

According to Friday’s address by US Treasury Secretary Steven Mnuchin, the new measures will require virtual asset service providers to implement the same AML/CFT requirements as traditional financial institutions. Companies engaging in crypto transactions will need to include the name of the sending customer, account number, physical address or national identity number – not just a transaction number – and the recipient’s name and account number.

New guidelines by the FATF

Identify who they are sending funds on behalf of, and who is the recipient of those funds;
Develop processes where they are required to share that information with other providers of virtual assets, and law enforcement;
Know their customers and conduct proper due diligence to ensure they are not engaging in illicit activity; and,
Develop risk-based programs that account for the risks in their particular type of business.

Says Mnuchin,

“We will not allow cryptocurrency to become the equivalent of secret numbered accounts.”
…

“The United States subjects the same AML/CFT controls to covered providers and activities as any other U.S. financial institution. For example, service providers must register with FinCEN. They must also institute an AML program, and recordkeeping and reporting measures, including filing suspicious activity reports.”

A report published by Bloomberg shows that regulators have failed to curb dirty money schemes with over $2 trillion laundered on an annual basis. The vast majority of money laundering operations occur in fiat flowing through regulated banks.

Originally published in February and now finalized, the FATF measures also state that information should be turned over to appropriate authorities upon request.

“Countries should ensure that originating VASPs obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts (if any), and make it available on request to appropriate authorities.”

Identity obscuring services including Bitcoin mixers and tumblers are at risk of non-compliance. Cryptocurrency exchanges, custodians and hedge funds that move and store cryptocurrencies, including privacy coins such as Zcash and Monero which are designed to obscure the identities of transacting parties, face regulatory challenges and are subject to costly efforts to become compliant.

Crypto organizations operating in FATF’s member countries will have 12 months to comply and will face a review in June 2020.