4 Years Ago

The fifth anti-money laundering (AML) regulations come into force on 10th January 2020 meaning, as the EU press release states, it will be “addressing risks linked to prepaid cards and virtual currencies”.

The impact of this is slowly dawning on the Cryptocurrency market, as it indicates that one will not be allowed to transfer or potentially use these types of payment mechanisms unless complete Know Your Client (KYC) and AML checks have been carried out. This is because the Fifth AML Directive intends that crypto-asset exchanges comply with anti-money laundering and counter-terrorist financing rules. 

This is where the challenge may lie as some Cryptocurrencies, such as Tether, are ‘owned entities’ which have not yet been subject to KYC/AML checks. No doubt, I can hear you say  - “So what?”. Well, according to Jeremy Allaire, CEO of Circle, “Asian traders account for about 70% of all crypto trading volume”, and Tether was used for up to 40% of all transactions on Binance and as much as 80% on Huobi, (two of the world’s largest Digital Asset exchanges) as was stated by Coin Metrics earlier this year. Tether is the world’s largest Cryptocurrency in terms of daily trading and, as you can see below, it dwarfs Bitcoin even though Tether is valued (according to Coinbase as at 14/11/19) at approximately £3.2 billion and Bitcoin at £126.2 billion.

Value of top 10 Cryptocurrencies 27th Sept 2019





Source: Bloomberg

If owners of a cryptocurrency have not passed KYC and AML checks they may well find that they will not be able to trade certain exchanges, which could subsequently reduce the amount of turnover. The reported trade between Russia and China alleges Chinese importers in Russia are buying up to $30 million a day of Tether (USDT) from Moscow’s over-the-counter trading desk, as Cryptocurrencies are used by the Chinese to send large sums of capital back to their home country. Maya Shakhnazarova, head of OTC trading at Huobi Russia, told CoinDesk, “Chinese traders accumulate a lot of cash in Moscow and need a tether to transfer it to China. A client comes with cash, we register the price at exchanges, when we agree on a price, we make a deal,” Shakhnazarova also added, “The client hands over the cash and a wallet address, the seller sends USDT to the wallet.”

It is of little surprise that central banks and regulators are now looking at tightening the controls to stop such flow of funds. Indeed, they are wanting to go one step further and offer their digital currencies, so they can have monitor digitally where transfers are going to and coming from in an attempt to be able to ‘crackdown’ on illicit market activity. Cryptocurrencies that had been subject to extensive KYC/AML checks when the Initial Coin Offerings (ICO) were issued could become a lot more popular. However, those ‘Cryptos’ that are unable to verify their holders may find exchanges will not trade them, and therefore their liquidity could become a real challenge.

 

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The Chancellor of the High Court, since 2016, said Sir Geoffrey Vos “I believe that this morning is a watershed for English law and the UK’s jurisdictions.  Our statement on the legal status of crypto assets and smart contracts is something that no other jurisdiction has attempted.”

“The objective, of course, is to provide much-needed market confidence and a degree of legal certainty as regards English common law in an area that is critical to the successful development and use of crypto assets and smart contracts in the global financial services industry and beyond.”

Sir Geoffrey’s speech can be read here. According to the Law Gazette, the Law Tech Delivery Panel concluded that:

  • Cryptoassets, including but not restricted to, virtual currencies, can be treated in principle as property
  • Smart contracts are capable of satisfying the requirements of contracts in English law and are thus enforceable by the courts. Statutory requirements for a signature can be met by techniques such as private key encryption. 
This announcement will surely offer succour to lawyers and advisors to the many companies listed in the UK and public bodies who are currently looking more and more at Blockchain technology and Digital Assets. It will be interesting to see what recommendations that the Law Commission makes in terms of new legislation to further clarify and potentially embrace Smart Contracts and Digital Assets.
 

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The above question is often asked - now we think we can offer some guidance. Though not in the short term though!

So, why is this the case? Well, Binance - which is one of the world’s biggest Crypto exchange - has a turnover of over $1.5 billion worth of Digital Assets a day, and just announced (despite only 15% of its turnover coming from the USA) that as of September 2019, it will offer a separate Digital Asset exchange for US investors and another exchange for non-US investors. Therefore, it would appear that it is unlikely in the near future that it is going to be possible to have one global exchange that anyone, regardless of where they live, can trade on.

However, with a G20 meeting being held on June 28th  2019 in Osaka, Japan, Crypto-exchanges are on the agenda. Maybe we will see some clearer guidance being given about how Crypto exchanges are to be regulated going forward.

The Financial Action Task Force (FAFT), which is an intergovernmental body established in 1989, and which focuses on money laundering and terrorist financing, will be presenting its recommendations on how Crypto-exchanges ought to be regulated before the G20 meeting. Although, given the traceability and transparency that Blockchain technology offers and the fact that you can, in effect, programme-in checks and balances, could make FAFT obsolete! Such checks are impossible with the current largely paper-based analogue systems and platforms that we currently use, but will FAFT see it this way?

Furthermore, Binance has also been in the news recently announcing that it is going to launch a stablecoin, pegged to £ Sterling, called $BGBP. Binance believes that by offering this new £-backed Digital Asset, it will encourage more people into the Digital Asset sector.

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Crypto
Investing
Digital Assets
There are currently eight debit cards that allow soending of Digital Assets using a “flexible friend”:  Bitpay, Shift, Wirex, Cryptopay, Fuzex, Crypto.com, Aximetria and Revolut.

However, there are some issues facing debit cards that offer cypto payment option, due to differences in legal requirements in jurisdictions around the world.

Wirex CEO, Pavel Matveev, highlighted one of the challenges being the need for a “BIN sponsor”. Bank Identification Number (BIN) sponsorship which refers to the company that possesses membership of a card payment network, such as Visa or Mastercard.

He revealed: “Several BIN sponsors were hesitant to work with Wirex at first when they learned that part of our model encompasses cryptocurrencies.” Since then, however, Matveev says that “BIN sponsors have become more receptive to crypto”.

Some countries have banned the use of Digital Assets to pay for goods such as China, Columbia, Ecuador, Bolivia and Vietnam, while others like USA, Canada and Australia are more supportive. There have been reports that Russia has banned the use of Digital Assets, but recently Deputy Finance Minister Alexei Moiseev was quoted as saying, ‘Using cryptocurrency debit cards to pay for goods and services does not contradict Russian law’.

Despite the challenges and confusion it appears not to have stopped Baanx from looking to launch a new Fiat and Crypto enabled debit card with Near Field Communication (NFC).

NFC technology enables point of sale payment with any supported cryptocurrency, instantly converting into fiat currency to pay for goods and services.

The ability to use Digital Assets with a Debit card could significantly increase the number of people involved in Digital Assets, as more and more people turn away from using cash and rely on debit and credit cards.


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Crypto
Digital Assets
https://coinnewstelegraph.com/crypto-debit-card...d-species/

5 Years Ago

Yes, $2 Trillion was laundered by regulated banks last year according to a recent report, yet banks remain resistant to offer banking services to firms involved in Cryptos.

Despite claims that 90% of all US$ banknotes have traces of Cocaine on them, banks and regulators still believe those in our society that want to carry out nefarious activities are using Crypto, not cash. But why would someone carrying out a criminal activity want to use a form of payment that leaves a digital footprint - a Crypto, when cash leaves no traces and banks seem to still be accommodating these activities?

Since 2008 banks have been fined over $26Billion JUST for KYC/AML non-compliance, with the USA regulator being the most active. While in Europe the UK’s FCA has imposed the largest number of fines. It is no surprise that many claim the current system needs to change, and while it was refreshing to see the FCA being proactive creating the FCA sandbox in 2016 where it allows regulated companies to trial new technology, which hopefully can improve the robustness of the financial system, more recent moves have called their ongoing commitment to innovation into question.

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Banking
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Cryptocurrency
https://www.btcwires.com/c-buzz/regulated-banks...-adoption/
Guy Hirsch, Managing rector of eToro U.S., sees the increased interest and investments in Digital Assets as a clear “generation shift."

He stated via press release: “we’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. At the heart of this change are the asset classes themselves.

Younger investors’ experience with the stock market has seen a great deal of loss of trust, with the fall of Lehman brothers...” One of the benefits of people investing in digital assets is that companies can know who their actual shareholders are and so have a relationship with them, and reward so offer them shareholder perks e.g. discounts off goods and services. This is almost impossible when shares are held as they currently are, in nominee structures.

Potentially companies could have no need for share registrars saving them money, as shareholders records can be updated in Real Time, which in turn would help regulators know who owns what which at the moment is impossible for a listed quoted company.

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https://www.ccn.com/bitcoin-is-the-gateway-drug...illennials
Signature bank of New York has announced that it is now offering bank accounts for businesses based in Bermuda that deal in Digital Assets.

There are believed to be over 60 companies that initially this will be of great assistance to, as despite the Bermuda government changing it’s law no locally based bank offer accounts in the Crypto sector. However, Signature bank claims that they are signing up companies that are also not involved with Cryptos.

The lack of banking facilities is a major hurdle facing businesses that deal in Digital Assets globally as it is extremely difficult to get a bank account in many jurisdictions around the world.

In the UK Clearbank  which is the first bank in over 250 years to be granted clearing bank status, is one of the is one of the few banks to offer bank accounts to firms engaged in Digital Assets but the company needs to be FCA regulated or in the process of applying to the FCA to be accepted by Clearbank.

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https://coinfomania.com/signature-bank-services...n-bermuda/
Banco BTG Pactual is to launch a Digital Asset linked to distressed Real Estate and aims to raise $15m.

BTG will pay investors a share of the rental income from the property and expects the returns to be approximately 15% p.a. BTG claim they decided to launch the token as Crypto investors are looking for high-risk investments. The bank is going to provide liquidity using their own capital and at $15m is a  sign this large Brazilian bank is just putting a toe in the water to test the appetite for this type of offer.

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https://www.bloomberg.com/news/articles/2019-02...cked-token
Samsung, the world’s largest mobile phone manufacturer’s new Galaxy S10  has built-in security with secure storage which houses your private keys for blockchain-enabled mobile services.

It also looks like it will allow the use of digital signatures and payments to merchants/shops as well as storing your Crypto currencies. The S10 comes with an upgraded camera system that features “advanced intelligence,” not sure what this means, but rather cool Samsung claim the S10 has the ability to charge other phones wirelessly!

Unfortunately, at $1,995 it is no bargain, but it will enable those on the move to carry out Crypto transactions potentially in a secure manner. The S10 follows on the heels of
HTC EXODUS Blockchain enabled phone, and the Finney Crypto phone that has a cool pop up cold wallet feature from SIRIN Labs. Samsung have been champions of the mass production of high tech consumer electronics, so how long will it be before they start selling more Crypto friendly ways to make dealing in Digital Assets more user friendly?

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https://www.ccn.com/samsung-galaxy-s10-bitcoin-...to-support
Musk this week while being interviewed claimed “Bitcoin’s structure is quite brilliant, but it would not be a good use of Tesla resources to get involved in crypto”

Musk knows a thing or two about money transfers, having been a leading light at PayPal, so he is better placed than most to understand the costs and limitations that traditional payments systems face. Musk also said, “Paper money is going away and crypto is a much better value for a transfer of value than pieces of paper, but, it's very energy intensive to create bitcoin at this point."

Elon Musk, while controversial, has a keen eye for disrupting industries: look at what he has done with solar power, launching satellites and of course electric cars, so it is unlikely to ignore Blockchain technology...

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Bitcoin
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https://www.youtube.com/watch?v=fKeK68wK0UQ
KT Corporation which is South Korea’s largest telecoms company is set to launch a Cryptocurrency which will be called the K-Token and initially will be rolled out as a pilot project in a city called GIMPO. 

The intention is that K-Token will be used in shops for transaction and will enable the funds to be converted into fiat and transferred to one bank account without incurring fees using QR codes. We are seeing more and more examples of organizations using Digital assets like the K- Token powered by Blockchain technology entering everyday lives.   like this are a long way from the volatile initial Crypos like Bitcoin and as importantly will be much more user-friendly to use, thus addressing two key barriers to more wide-scale adoption of Digital Assets. K-Token is an interesting experiment which if successful could be copied by towns and cities globally who want to build local communities using Digital Assets for commerce.

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Crypto
Telecommunications
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https://www.dcforecasts.com/south-korean-teleco...ocurrency/
NASDAQ is the worlds 2nd biggest stock exchange developed a range of surveillance technology to ensure that good market practices are upheld and regulators and traders can have confidence in prices and general trading.

Such monitoring services are now being deployed by at least seven Crypto exchanges and one suspects many regulators will want to question what systems other Crypto exchanges have in place similar to what NASDAQ offers. Such surveillance systems are further signs of Digital Assets maturing and embracing the infrastructure required so that governments, regulators and traditional investors will draw comfort and be more engaged in this new asset class.

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https://www.financemagnates.com/cryptocurrency/...ance-tech/