CoolBitX Founder Michael Ou believes regulators in Asia are leading the way when it comes to compliance with the Financial Action Task Force (FATF) travel rule, which is due to be implemented in June.
The startup has developed a solution to the travel rule, called Sygna Bridge, which allows exchanges to communicate the identities of the senders and receivers of each transaction.
On May 7 it announced it had conducted a series of cross-border transfer tests that demonstrated Sygna Bridge’s effectiveness in complying with the FATF guidelines by verifying transactions against the names of known terrorists and drug dealers.
Singapore and South Korea
Ou told Cointelegraph that in his opinion Singapore and South Korea have the best regulatory oversight in the lead up to the travel rule being reviewed in a few weeks.
“Asia is on the path to change the [crypto] industry and may provide a blueprint for the rest of the world,” he said, noting Singapore’s Payment Services Act and South Korean legislation amending the Act on Reporting and Using Specified Financial Transaction Information, as examples of regulators who were prepared for the travel rule.
As the world’s third-largest economy, Japan has seen major financial institutions such as Nomura, SBI Holdings, and Rakuten making significant investments into the Japanese crypto market. Ou said Japan must also play a large role in regulating virtual asset service providers (VASPs):
“It is expected that the soon-to-be-published mutual evaluation report for Japan will also focus on compliance of VASPs with the FATF Recommendations. It would be helpful to other countries if the regulators in Japan, a country seen by many as being at the forefront of digital asset adoption, could demonstrate the measures employed to ensure VASPs comply with FATF’s recommendations.”
Meanwhile, InterVASP has released a new messaging standard to facilitate the exchange of data between VASPs. If effective, it would also help the firm comply with AML regulations from the FATF.
Background on the travel rule
In 2019, the FATF asked global regulators to adopt its anti-money laundering (AML) guidelines for cryptocurrencies. The guidelines came to be known as the “travel rule” and provides a number of AML and Anti-Terrorist Financing (ATF) measures for exchanges aimed at preventing cryptocurrencies from being used illicitly.
The FATF said it would “monitor implementation of the new requirements by countries and service providers and conduct a 12-month review in June 2020,” giving the crypto community a year to catch up.
FATF compliance worldwide
“The vast majority [of crypto exchanges around the world] are still facing challenges,” Ou said.
“I would imagine that most exchanges — at least those in FATF countries — are looking at ways to comply with the ‘Travel Rules’. However, there are additional complications as countries are at different levels of maturity when it comes to regulatory development. Some regulations may go beyond the FATF requirements, and without clear regulations, exchanges may be hesitant to implement a solution.”
The FATF published a report in March 2020 stating that VASPs in the United States were “largely compliant” with its recommendations and that the regulatory body overseeing digital assets in Canada was also tightening regulations. Japan, Singapore, and South Korea have not yet been evaluated by the FATF in 2020.
However, in the U.K. the HM Treasury decided against amending the current regulations to give VASPs more time to develop solutions.