The FATF Comes Into Action
The Financial Action Task Force (FATF), an inter-governmental body, has recently released a report urging all 35 member countries to regulate cryptocurrency exchanges as commercial banks. Established in 1989, the objectives of the FATF are to promote effective implementation of legal, regulatory and operational measures to combat; money laundering, terrorist financing and other threats to the international financial system. The decision-making body – FATF Plenary – meets three times per year.
All influential countries and jurisdictions are members of the task force, including the US, China, the United Kingdom, Germany, and others. During their latest meeting in France (February 22nd) the FATF:
‘urged the financial authorities of the member states to regulate cryptocurrency exchanges, in the same manner, they regulate commercial banks.’ ‘…in order to prevent cryptocurrencies from being misused for illegal transactions,’
As a result of these meetings, South Korean financial regulators, the Financial Services Commission, will now tighten the supervision standards of cryptocurrency exchanges which fall under their legal jurisdiction. Requirements for member countries from the FATF includes the ‘detailed implementation requirements for effective regulation and supervision/monitoring of virtual asset services providers.’ Importantly the FATF has made the recommendation for all members to treat virtual assets as:
‘…‘property,’ ‘proceeds,’ ‘funds,’ ‘funds or other assets,’ or other ‘corresponding value.’’
What does this mean to cryptocurrency markets?
The specter of further regulatory implementation has never strayed far from the thoughts of exchange owners and speculators. Whilst some may be wary of knee-jerk reactions hindering, or even hurting, the progress and expansion of the entire ecosystem, regulation in its generality will only be a net-positive badge of confidence from traditional market makers.
Recent news of Cambridge Associates, a consultant for pensions and endowments, endorsing traditional institutional investors to dip ‘their toes’ into cryptocurrencies demonstrates the need for clarity and official regulation surrounding exchanges. Indeed, most institutions currently avoid the industry due to its lack of regulation – with accusations of insider and wash trading hurting investment.
‘Despite the challenges, we believe that it is worthwhile for investors to begin exploring this area today with an eye toward the long term,’’ ‘Though these investments entail a high degree of risk, some may very well upend the digital world.’
With the FATF formally implementing its suggested measures in June, exchanges and speculators may begin hedging their positions against perceived negative market volatility. Some assets may attract further ‘securities’ definitions, which could hurt short-term investor confidence. This effect should be short-lived, however, if major players begin to enter the market as a result.