Blockchain may help the crypto industry comply with FATF rulings
A new pilot program aims to help tidily fix the frictions of FATF cryptocurrency regulations.
A new set of Financial Action Task Force (FATF) rules has caused some consternation in the cryptocurrency industry. The new rules require cryptocurrency exchanges to share customer information, but the systems for safely sharing this kind of data internationally and at scale don't exist yet.
One potential solution has come from within the industry, with cryptocurrency intelligence firm CipherTrace and blockchain identity company Shyft jointly proposing a new blockchain-based solution that they hope can satisfy regulatory requirements as well as satisfy exchanges and their customers.
On the blockchain
"Our focus is on creating federated standards for identity, which are blockchain agnostic," said Shyft founder Joseph Weinberg. "We make sure KYC checks can be transferred across networks in a secure manner without compromising identity information. This program bridges a critical gap between new regulatory standards and existing exchange operations to greatly strengthen the crypto ecosystem with a practical implementation of the FATF’s Travel Rule."
In other words, it's a blockchain-based system that can securely pass along the required customer information without simply resorting to ping-ponging that sensitive data around the world.
"With cryptographically controlled privacy mechanisms, it is possible to have both anonymity and responsible disclosure of the source of funds for legitimate purposes such as criminal or terrorist investigations and AML compliance," explained CipherTrace CEO Dave Jevans. "This is the direction that CipherTrace is working on for the future growth of cryptocurrencies globally. We believe that there are technological and regulatory solutions that can preserve privacy while enabling security and compliance."
It's worth noting that there are nuances to the FATF ruling, and some differences between the rules as they apply to banks and as they apply to cryptocurrency exchanges, that might make blockchain-based solutions extra convenient here.
CipherTrace illustrates the differences like so:
One of the differences is that virtual asset service providers don't have to send the relevant information with the actual transfer itself the way banks do when transferring customer funds. This could allow more flexibility in how the relevant data is made available when needed.
Essentially, you can keep the sensitive data in a safe place to be accessed as needed by the relevant parties, rather than replicating it over and over again for different institutions and their records.
This is part of the idea behind the new CipherTrace and Shyft pilot program. The organisations will develop shared smart contract and cryptographic access controls between cryptocurrency exchanges to manage their access to customer private details. The overarching goal is to make KYC and AML faster, more efficient and open, all while maintaining a high level of privacy and only revealing identity information when compelled to do so by legal authorities.
Blockchain problems deserve blockchain solutions.
Disclosure: The author holds BNB and BTC at the time of writing.
- Can Dogecoin’s price continue to soar despite a marketwide correction?
- Bitcoin’s price plunges 10% before rebounding – market witnesses massive liquidations
- Ethereum price surges to all time high before Berlin hardfork
- Bitcoin price sets record above $84,000 lifting these coins with it
- What is behind Ethereum’s soaring price?