In the crypto-economic sphere, few groups are so crucial yet so scorned as those representing the regulatory body. Tragically, despite the well understood capacities to influence this space, there’s a painful lack of communication with those involved in crypto regulation because of these attitudes. Noting this deficiency, we spoke with Joe Ciccolo of BitAML to better explore the topic.
Joe is a Certified Anti-Money Laundering Specialist (CAMS), Certified Fraud Examiner (CFE), and Anti-Money Laundering Certified Associate (AMLCA). Prior to launching BitAML, Joe was a founding member and architect of the BSA/AML program of a top 100 US-based financial institution. He also served as a project manager for a top 20 global bank, where he led several regulatory and audit remediation projects.
Cointelegraph: As someone who works in the legal space for digital currencies, what drew your attention to digital currencies in particular? Is there a certain challenge or problem you think digital currencies can solve better than the older financial institutions?
Joe Ciccolo: Traditional financial institutions are unable to innovative because they've convinced themselves it's impermissible. From my perspective, it's a business decision. Why in an era of IM and email, where one can securely send software, IP and legal documents around the world instantaneously, should consumers wait 5-7 days for a transaction to clear?
When confronted by bitcoin, banks proceed to differentiate their services based on a higher degree of friction that the consumer does not want and enhancements to analog methods that at best will buy them time. Traditional institutions will continue to insist the answer is a faster horse, not an automobile.
CT: In your opinion, how do the regulatory agencies seem to perceive this new technology? Are they more in line with the old sector touting "we already have a system that works so why change it," or are they more excited to see how they can use this technology in a way that protects end users in good faith?
JC: The regulatory community seems to be coming around when it comes to understanding the inherent risk mitigating and consumer protection properties of the blockchain. Regulators view new technology as possessing higher risk because illicit actors tend to gravitate to these platforms early on in order to exploit the knowledge gap and real or perceived control weaknesses.
Regulators should now begin to look at the blockchain as a means of information sharing among institutions. The current system used by traditional bank AML programs - 314(b) - is extremely time consuming and ineffective. In essence, it's a voluntary analog system for sharing private ledgers that transmit, and thereby exposes, sensitive personal data.
CT: Where do you see the regulatory environment heading from here? Do you have any connections or foresight that have given you hints as to what businesses and consumers might expect to face in the coming years?
JC: Great questions. Looking ahead, while I believe exchanges, kiosks and other bitcoin platforms will continue to be regulated as MSBs, the compliance bar will be raised. State-level regulators and legal associations continue to convene working groups whose proposed regulatory frameworks contain enhanced requirements in areas such as consumer protection, cyber security, and auditing. Additionally, recent discussion and past history lead me to believe sought-after on-ramps or temporary licensing provisions are unlikely.
CT: How would we know when the regulatory agencies have been diligent in their pursuits and successful in their goals?
JC: A sure sign that the regulatory environment is moving in the right direction would be when regulators know and understand the risk mitigation inherent in the blockchain and accept new, unique and more tech-centric approaches to compliance.
CT: Are there any parting thoughts you would like to leave our readers with?
JC: I would only add that regulators need to step up and address the "derisking" of bitcoin MSB bank accounts. Sending out an agency press release or sound bite does not solve the problem. Simple, straightforward expectations of bank AML customer due diligence (CDD) can go a long way.
Joe Ciccolo will be speaking at the upcoming Blockchain Agenda with Inside Bitcoins Conference & Expo in San Diego on December 14-16. Interested in attending? Get 10% off your registration with the discount code COINTELEGRAPH. Register today!