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As we noted in a recent commentary (see here and here), one of the most controversial and challenging crypto regulatory issues in existence unhosted wallets. As regulators debate how to ensure maximum transparency around crypto activity, The crypto industry makes strong arguments that unhosted wallets must be protected from regulatory intrusion.
This week, Coinbase CEO Brian Armstrong weighed in on this hot topic on Twitter. Citing what he admitted were rumours, Armstrong Tweeted that Coinbase recently learned that the US Treasury wants to introduce measures affecting non-hosted wallets. According to Armstrong, “We think this proposed regulation would require financial institutions like Coinbase to verify the recipient/owner of a self-hosted wallet, by collecting identifying information about that party, before a withdrawal can be sent to that self-hosted wallet.”
Armstrong’s Twitter rant then goes on to explain why such regulation would be both impractical due to the open nature of cryptoassets, but also counterproductive, to the extent that it would undermine financial inclusion goals and other worthy policy goals.
At Elliptic, we strongly believe that regulators should not take steps to limit the ability of exchanges to deal with non-hosted wallets, or otherwise require them to take impractical steps that involve identifying the users of those wallets. Not only are such measures impractical and a threat to key goals such as promoting financial inclusion – they are completely unnecessary.
Contrary to claims that unhosted wallets present uncontrollable risks, there are already solutions that can enable exchanges to identify and manage the risks associated with unhosted wallets.
Blockchain analytics solutions enable crypto exchanges to identify risky transactions involving unhosted wallets. Exchanges can track funds through unhosted wallet addresses, gaining insight into exposure to high-risk addresses and counterparties. This transparency provides insight into the risks associated with unhosted cryptoasset wallets that are impossible to obtain when dealing in fiat currencies and cash.
Moreover, the most significant financial crime risks affecting the crypto space do not stem from hostless wallets. Instead, the biggest risks from crypto trading platforms are located in countries that have failed to regulate crypto-asset business or in countries that have failed to enforce existing requirements. We believe that regulators should focus on fully applying global AML standards to Virtual Asset Service Providers (VASPs) and ensuring robust enforcement of those requirements, rather than implementing new, impractical measures targeting the use of non-hosted wallets.
Contact us today for a demo to learn more about how our blockchain analytics solutions can enable your business to identify and manage financial crime risks when dealing with unhosted wallets.
G20 focuses on Stablecoins
Stablecoins have been featured as another controversial topic throughout 2020, and it looks like the G20 will keep the debate hot in 2021.
This week, finance ministers from the G20 countries issued a statement which included remarks on stablecoins. The announcement states that technological innovation is critical in the light of the Covid-19 crisis, but emphasizes that the G20 will remain alert to the risks of new financial technologies, and singles out stable coins.
According to the G20, “no so-called ‘global stablecoins’ should commence operations until all relevant legal, regulatory and supervisory requirements are adequately addressed through proper design and adherence to applicable standards.”
While not necessarily a new G20 position, it underscores the concerns financial policymakers have about innovations such as Facebook’s Diem, formerly known as Libra, which newspaper reports say it could launch as early as January. As the Financial Action Task Force (FATF) also highlighted in this year’s report, Financial watchdogs are concerned that the international financial system could face new risks of systemic financial crime if stablecoins are rapidly launched globally. The G20 statement also coincided with the release of the report Bank for International Settlements examining the risks of stablecoins and potential policy responses.
At Elliptic, we believe that financial crime risks from stablecoins are ultimately manageable and do not require a heavy-handed response. Our blockchain analytics solutions enable companies with cryptoassets track transactions in stablecoinsensuring regulatory compliance and managing financial crime risks.
Contact us today to learn more about how we can help your businesses issue or handle stablecoins in a secure and compliant manner.
Crypto.com gets the green light from regulators in Malta
Don’t worry, it’s not all controversy! This week also saw positive “firsts” for the crypto industry.
Hong Kong-based Crypto.com became the first crypto-asset business to receive conditional approval for a license in Malta. In 2018, a European island nation launched a legal framework for cryptoassets which many claimed would make it a sought-after destination for crypto companies from around the world. In fact. progress in implementing the regime is slow. The Malta Financial Services Authority has taken its time to launch its licensing process, prompting some crypto companies to leave the island rather than wait for license approval.
The MFSA’s conditional approval of Crypto.com is a sign that things may be changing. Importantly, the licenses they need to obtain could allow Crypto.com to be included in the European Commission’s proposals Crypto Asset Markets (MiCA) framework, which would significantly expand the regulatory requirements for European crypto businesses in the future.
Hopefully news of Crypto.com’s progress in Malta is a sign of good things to come there. If your crypto business wants to get regulatory approval in Malta, contact us to learn more about how Elliptic’s blockchain analytics solutions can help you gain the trust of regulators.
French crypto registration deadline looms
In France this week, regulators issued an important warning to crypto-asset companies: get your registration applications in or else!
Autorite des marches financiers (AMF) and Prudential Supervision and Resolution Authority (ACPR) issued a statement this week reminding cryptoasset exchanges and custodians that they have until December 18 to register with the regulator if they already operate in France. For those who do not register within the deadline, they face a sentence of two years in prison and a fine.
The statement shows that the AMF and ACPR are serious about enforcement The cryptoasset framework was first proposed by France in spring 2019and it was formally introduced in December 2019. At that time, cryptoasset exchanges and custodians already operating were given one year to register with the AMF – and that deadline is fast approaching.
to date, The AMF has approved the registration of five cryptoasset exchanges. Any cryptoasset exchange or custodian operating in France must have a strong compliance program if it wants the AMF to approve its registration. This includes the existence of a a powerful blockchain analytics solution to allow you to detect high-risk wallets and transactions.
Contact us to learn more about how we can help your cryptosaset business meet AMF requirements.
Missed last week’s update? See here: Crypto regulatory affairs: US OCC paves the way for crypto business
