red 
2019 was a watershed year for anti-money laundering (AML) regulation in the crypto space.
From Financial Action Task Force (FATF) crypto guidelines to crypto consultations and regulatory compliance alerts, 2019 made it clear that crypto regulation is here to stay.
We predict that last year was just the beginning, and that in 2020, cryptoregulation will expand to new frontiers.
In this post, we predict five regulatory trends that will dominate the crypto scene in 2020.
1. Regulators will require banks to address crypto risks
While the number of banks is increasing accepting cryptomany have tried de-risk sector.
The 2019 FATF guidance made it clear that risk mitigation is not sustainable. As the cryptosphere grows, avoiding crypto exposure is impractical. The FATF, therefore, called on local regulators to require banks to implement a risk-based approach that allows them to identify, assess and manage the risks associated with cryptocurrencies.
In December, Hong Kong issued guidelines urging banks to take a risk-based approach to the crypto sector, while the head of the US Financial Crimes Enforcement Network (FINCEN) said banks must “ask themselves whether they are reporting [virtual currency-related] suspicious activity. If the answer is no, they need to reassess whether their institutions are exposed to cryptocurrency.”
We predict that in 2020, more regulators around the world will take steps to address the need for banks to proactively manage crypto risk exposure similar to what we saw in Hong Kong.
Banks that proactively implement systems to identify their crypto risk exposure will position themselves to confidently engage in the crypto sector while also responding to regulatory expectations.
2. The APAC region will have greater regulatory clarity, but also more enforcement
During 2018 and 2019, the APAC region was a mix of rapidly evolving and sometimes unclear regulatory requirements.
2020 will see greater regulatory clarity in the APAC region as countries implement the FATF crypto guidelines.
From Singapore’s planned launch of its cryptocurrency regulatory framework in January, to Japan’s planned spring regulatory update and South Korea’s upcoming enactment of its own measures, 2020 will see greater regulatory clarity across the APAC region to enable the launch of safe and reliable crypto services for consumers and investors.
However, this clarity brings challenges. As regulatory frameworks emerge across APAC, the crypto industry can expect to be matched by increased enforcement. Companies that do not comply will face more frequent and larger fines, penalties and potential license revocation.
Crypto companies in the APAC region need to take proactive steps now to prepare for the upcoming tightening of oversight.
3. Despite concerns, Libra and other stablecoins will gain the trust of regulators
Facebook’s planned Libra project could be the biggest crypto story of 2020. It has certainly prompted regulators to express concern and focus attention on the risks associated with stablecoins more broadly.
Despite these concerns, we predict that in 2020, Libra and other major stablecoin projects will gain the confidence of regulators. As regulators learn that the financial crime risks of Libra and other stablecoins can be managed using techniques such as blockchain analytics, they will provide clearer guidance to the market on regulatory requirements to ensure that stablecoin projects can be launched in more parts of the world, in a safe and reliable way.
This will not mean that cryptocurrency compliance teams have a free pass. Instead, crypto companies will still need to ensure that they have the ability to monitor and assess the risk of financial crime associated with any stablecoins listed on their platforms.
But with greater regulatory comfort and clarity around stablecoins, we expect this exciting new asset class to grow.
4. Sanctions actions targeting crypto activity will grow
Last year, we predicted that the US would step up its use of sanctions measures affecting the crypto space.
We think we got it right. In August 2019, the US Treasury’s Office of Foreign Assets Control (OFAC) added 12 new crypto addresses to its sanctions list. And on January 7, Ethereum developer Virgil Griffith was charged with violating US sanctions against North Korea after traveling there to present at a cryptocurrency conference.
We predict that in 2020, sanctions involving cryptocurrencies will be strengthened, and US authorities will increase the use of targeted sanctions in response to global threats involving cryptocurrencies.
Complying with crypto-related sanctions presents complex technical challenges, so crypto companies must ensure they have comprehensive action plans in place.
5. More regulators will require Blockchain monitoring for AML
In 2019, regulators made it crystal clear that blockchain tracking solutions like Elliptic a core pillar of AML compliance.
The FATF, as well as regulators in Hong Kong, Abu Dhabi and the US, have issued guidelines emphasizing the need for crypto companies to be able to monitor customer transactions and meet their AML requirements. Hong Kong’s Securities and Futures Commission issued the most direct call in November 2019, requiring crypto exchanges to “use technology solutions that enable the tracking of virtual assets across multiple transactions.”
We think 2020 will see more regulators making specific requirements for crypto companies to implement blockchain tracking solutions. But crypto companies shouldn’t just wait for their local regulators to do so before taking steps to do so.
Those who stay ahead of the curve and incorporate blockchain monitoring into their compliance programs will not only meet new regulatory requirements, they will also protect their businesses from financial crime – laying the foundation for business success in 2020 and beyond.
what do you think Does your crypto business face these challenges in the coming year? Contact us today to learn more about how Elliptic can help you navigate. Or contact us to challenge our predictions – we look forward to hearing from you.
Sanctions Compliance Regulation
