Author: Syedur Rahman 26 February 2020
With cryptocurrency exchanges now having to devise a method for the secure transfer of information, Syedur Rahman of financial crime solicitors Rahman Ravelli considers the potential obstacles to such a development.
Cryptocurrency exchanges are under pressure from regulators to create a secure messaging system to exchange information about financial transactions and comply with money-laundering rules. Read the guide: Cryptocurrency – Reducing The Risks.
Last year, the money laundering watchdog Financial Action Task Force (FATF) advised its 37 member jurisdictions around the world to impose a rule on what it termed “virtual asset service providers”. The rule required exchanges to share information about the identities of the sender and receiver of transfers over a certain threshold.
This was criticised both because it expected the industry to create a new information-sharing infrastructure and because exchanges cannot necessarily always tell when a customer is sending money to another exchange. But regardless of the critics, the crypto industry must devise a system; which could be along similar lines to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system used by the world’s major financial institutions.
At this stage, certain questions still need answers; the main one being precisely what method should exchanges use to transmit information to each other? But there is also the issue of compliance with data privacy laws, such as the European Union’s GDPR (General Data Protection Regulation).
This requirement that has been laid on crypto exchanges defeats the purpose of why cryptocurrencies were created in the first instance. But, despite that, there is a clear and unarguable need for regulation. Exchanges should have know-your-customer checks in place for those who use them. The tricky issue that really needs to be addressed is determining at exactly what point they should they be allowed to reveal any information about their customers to third parties if and when they are required to do so.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.