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Japan Leads New Effort to Create Global Cryptocurrency System

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Despite the potential of cryptocurrencies, many financial institutions have been wary of adopting these digital coins due to the potential of money laundering and fraud. This timidity on the part of financial institutions has been a drag on the potential growth of widespread cryptocurrency adoption.

However, the issue of anonymity is now starting to be addressed by governmental agencies across the globe. This has helped to alleviate concerns of criminal activity related to cryptocurrency transactions and could be bullish for those looking to trade Litecoin, Bitcoin and other cryptocurrencies.

Japan Proposes New Cryptocurrency Payments System

One of the latest regulation efforts comes from Japan who, prior to a G7 meeting of central bank governors and finance ministers in July 2019, announced its government is heading up a worldwide effort to initiate a global system for cryptocurrency transactions. The proposed system will be comparable to the international system currently utilized by banks, known as the SWIFT network.

Japan’s initiative was approved by the Financial Action Task Force (FATF), a global organization created with a mission to combat money laundering through the development of governmental policies.

Adoption of FATF Guidelines

The FATF is leading the way on organizing governments around the world toward adoption of a single set of cryptocurrency rules. Now, fifteen countries are looking to join the new effort at starting a global cryptocurrency system aimed at increasing compliance with standards set forth by the FATF. Australia and Singapore have been tasked with developing the new system.

In June 2019, the FATF announced guidelines for cryptocurrencies and service providers, which focuses on risk-based strategies and approaches. The FATF guidelines were discussed at the recent G20 Summit held in Japan. The leaders of the G20 countries, along with their finance ministers, stated their commitment to adhere to FATF standards during the summit.

Compliance Monitoring

It is important to note that agreeing to follow guidelines is not the same as actually adhering to the proposed rules. This is why the FATF has developed strategies on monitoring how governments apply their standards. The FATF, which spans 37 member jurisdictions as well as two regional organizations, will conduct an annual review, starting in June 2020. Countries which fail to adhere to FATF standards may risk blacklisting. However, it is important to note that currently, FATF guidance is not legally binding and does not override the authority of national governments.

Service Provider Licensing

FATF guidance states that countries are required to mitigate risks related to cryptocurrency service providers through registering or licensing. Adherence to guidelines require national authorities to competently monitor and supervise service providers. Several nations already have licensing requirements for cryptocurrency service providers. For instance, in Japan, cryptocurrency exchanges must be registered with the Financial Services Agency (FSA). As of now, 19 cryptocurrency exchanges are FSA-registered, while more than a hundred more have communicated interest in future registration.

Although many countries still do not have any cryptocurrency licensing rules, some of them are looking at possible future implementation of FATF standards. For example, South Korea’s Financial Intelligence Unit (FIU) has developed a plan for direct regulation of cryptocurrency exchanges. The plan would bring exchanges into the existing financial regulation system under the Financial Services Commission (FSC). As of now, the FIU regulates cryptocurrency exchanges indirectly via guidance to banking firms.

Strengthening Anti-money Laundering Laws

Some countries have decided against introducing new laws in favour of an easier strategy of amending anti-money laundering laws already on the books. For example, Thailand has formulated a plan to amend existing laws to require cryptocurrency exchanges to obtain approval from Thai financial authorities. Although Thailand is not a FATF member, the country is a part of the Asia/Pacific Group on Money Laundering. This group aims to ensure implementation of specific FATF guidelines.

FATF Adoption Stabilizes Cryptocurrency Markets

One potential effect of increased implementation of FATF guidelines is the stabilization of the cryptocurrency market. More governmental regulation of cryptocurrencies makes it safer for parties to make cryptocurrency transactions, which encourages utilization by larger financial institutions and the general public. This could be taken as significantly bullish for cryptocurrency traders, opening many lucrative trading opportunities.

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