U.S. exchanges may also lose customers, as instead of going through an exchange or another virtual-asset service provider (VASP), some may simply start trading with others directly, to safeguard their privacy.
“I get why the FATF wants to do this,” Jeff Horowitz, chief compliance officer at San Francisco-based Coinbase, the largest U.S. crypto exchange. “But applying bank regulations to this industry could drive more people to conduct person-to-person transactions, which would result in less transparency for law enforcement. The FATF really needs to consider the many unintended consequences of applying this specific rule to VASPs.”
Just how soon these consequences start to hit home will depend on the individual agencies. Groups like the Financial Industry Regulatory Authority (FINRA) are expected to start to vigorously enforce the rules. Financial Crimes Enforcement Network (FinCEN) recently issued interpretive guidance that looks similar to those being considered by FATF. Some state agencies could follow suit, raising the risk that non-compliant businesses will lose money-transmitter licenses.
If a country doesn’t comply with FATF rules and is placed on its blacklist, “it can essentially lose access to the global financial system,” said Jesse Spiro, head of policy at crypto investigative firm Chainalysis Inc.
The proposed regulations could also impact many of the more than 500 crypto funds that have popped up in the past few years, according to Josh Gnaizda, chief executive officer of CryptoFundResearch. “Trading delays or additional transactional costs as a result of compliance with FATF could significantly chip away at returns.”
After multiple meetings with the crypto industry, the regulators likely know compliance will take time, as the industry mulls new technologies and processes. Some participants are looking at the bright side, as greater oversight could lead to more institutional acceptance of crypto.
“Will it be a potential hardship? Certainly, at least initially,” Chainalysis’s Spiro said. “While it may be a hardship, it seems to be something that’s necessary. The road map at the end of the day after this is less arduous for this industry.”
This article was provided by Bloomberg News.