Is Regulation Good for Crypto?
By Moni Talks Head of Group Compliance and MLRO Leyre N'Shimbi Fernandez
Could regulation offer a secure space for growth in the crypto sector, or will it push virtual assets to find unregulated markets?
Moni Talks has been open about its commitment to reasonable, enforceable regulation to protect cryptocurrency users and the industries reputation.
Crypto assets have been around for more than a decade, but it is only relatively recently that they have become a priority on agenda of regulators worldwide.
Widely reported scams and the spectacular failure of FTX last year have focused minds on the need to properly regulate the industry. But will regulation make it safer, or drive the worst elements further underground?
The Concerns
The decentralised nature of cryptocurrency and lack of clear regulatory frameworks creates fears surrounding money laundering and terrorist financing. There are also serious concerns, as Moni Talks has said many times, around consumer protection.
The growth of the crypto assets market has galvanised these concerns, and we are beginning to see international action. More than 100 countries have included crypto regulation in their agendas over the last few years.
This can be attributed to the growth of the crypto assets market, which is no longer considered a specialised product but comparable with traditional investments, the opacity of transactions and customers leading to financial crime concerns, and the failure of controls in some crypto exchanges which have left many customers out of pocket.
Confusion and Controversy
While more in the industry are coming around to the same way of thinking as Moni Talks, that sensible oversight of digital assets is necessary, regulation remains a controversial topic.
This is, in part due to the fact that different jurisdictions are enacting very different rules, causing confusion and inconsistency.
While some countries have decided to ban virtual currencies all together, such as Morocco, China, and Qatar, others have not only have created a regulatory environment to oversee crypto but have made Bitcoin legal tender, like El Salvador.
Other jurisdictions have adopted an implicit ban where cryptocurrency exchanges, banks, and other financial institutions are not allowed to deal in cryptocurrencies or offer services to individuals and/or businesses dealing in cryptocurrencies.
But there are many which have created a framework to make virtual assets legal and regulated investments.
FATF, MiCA, and More
The Financial Action Task Force (FATF) extended the risk-based approach to activities related to virtual assets and in 2018, Recommendation 15 was updated expanding AML/CFT requirements to crypto businesses.
In 2019, the FATF issued further guidance on virtual assets including obligations around CDD, KYC, record keeping, transaction monitoring and suspicious transaction reporting with the revised guidance reviewed in March 2021 and finally adopted in October the same year.
This has been translated into requirements adopted by countries around the world such as VARA in Dubai and MiCA in the EEA. Further, the extension of FATF’s Recommendation 16, known as the Travel Rule, is in various implementation phases in different jurisdictions to align cryptocurrencies to traditional wire transfers requirements removing the anonymity of crypto transactions.
The application of the regulatory framework world-wide can be challenging as the terminology and data are not harmonised so could be a complex process to standardise terms and practices.
Running from Regulation?
The misaligned adoption of legislation in some countries may push the crypto industry into “crypto paradises”.
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Some of these more “crypto-friendly” jurisdictions, such as Miami and California, are already actively trying to attract the cash and jobs that could come with being crypto hubs. While lack of laws and regulations may be appealing to some, financial stability, transparency and protection for consumers and investors will be compromised.
The lack of strong operational, governance and robust risk management practices could lead to high-profile cases of hacking-related thefts of customer funds. This is why Moni Talks supports reasonable, considered regulation, and is committed to observing the rules of every jurisdiction it operates in.
Regulation seems to go against the spirit of cryptocurrency. The ethos of decentralisation, cutting governments out of financial transactions, is central to the culture of crypto empowering individuals to manage their money.
However, consumer confidence and protection are central to widespread adoption.
A regulatory framework will help to promote consumer confidence and minimise financial crime concerns, increase consumers’ protection, and reduce cyber security risks.
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