Protecting its customers while remaining compliant with regulatory requirements has always been a priority for Banxa. Its compliance team was looking to solve two problems in searching for a new compliance solution: scaling ongoing monitoring for existing customers as the business grew and improving efficiency when onboarding new customers.

Focusing on true positives 

As a scale-up during the cryptocurrency boom in 2020, Banxa’s compliance team experienced challenges in scaling to keep pace with the rate at which the business grew, coupled with a high percentage of false positives when screening new and existing customers. They were searching for a way to improve the operational efficiency and effectiveness of their AML screening. 

As the company expanded into new markets, its sanctions obligations also became more complex, amplified by global events, including the Russian invasion of Ukraine. Banxa selected ComplyAdvantage due to the breadth of its data and the flexibility of its configurations. This enabled the firm to access up-to-date global sanctions and politically exposed person (PEP) data while tailoring its monitoring and screening to its risk profile. 

Banxa also deployed tailored adverse media searches to refine its approach further. The compliance team deployed ComplyAdvantage’s adverse media taxonomy alongside tailored search levers and configured match settings. By refining the scope of its screening, Banxa had a 43.5 percent reduction in adverse media matches, enabling the team to focus on those that present the highest risk to the business. 

A growing partnership

ComplyAdvantage is committed to supporting Banxa’s goal of safeguarding its customers, business, and the crypto ecosystem from money laundering and terrorist financing risks, regardless of economic conditions. The partnership began in 2019 and has endured as the crypto market grows and evolves.

Consistent engagement between Banxa and ComplyAdvantage has helped the compliance team manage the unpredictability of the shifting cryptocurrency industry. With the help of ComplyAdvantage’s customer success and technical support teams, Banxa has achieved a range of efficiencies. These include revised search profiles and optimized monitoring volumes. Today, Banxa is well-positioned to flex with the demands of its customers and the cryptocurrency market.

“Despite challenges in recent years, Banxa has been committed to protecting its customers and the cryptocurrency ecosystem. ComplyAdvantage has been an invaluable and reliable compliance partner, allowing us to focus on growing our business.” 

– Teresa Lau, Head of Compliance, Banxa

The post Banxa improves PEP and adverse media screening efficiency with ComplyAdvantage appeared first on ComplyAdvantage.

Thus far in the investigation, detectives have seized 300 kg of illegal drugs, $2.8 million in cash, and 15 firearms.

About Operation Phobetor-Enyo

Formed in 2022, Operation Phobetor-Enyo was established as a joint task force comprising the New South Wales Police Force (NSWPF), the Australian Federal Police (AFP), the Australian Criminal Intelligence Commission (ACIC), and the NSW Crime Commission (NSWCC). Under the operation, the NSWPF Organized Crime Squad executed six search warrants on October 19, spanning five areas, including Bankstown, Double Bay, Lane Cove, Parramatta, and Umina Beach. 

Four men aged were arrested in Double Bay and Parramatta. Each has been charged with assisting in transporting and laundering funds on behalf of the international syndicate. In Lane Cove, a 64-year-old woman was arrested and charged with coordinating the operation on behalf of the offshore Vietnamese ringleader. In Umina Beach, two women, aged 26 and 27, were arrested, and the younger woman was charged with seven offenses, including:

• Four counts of knowingly dealing with proceeds of crime.
• Two counts of supplying prohibited drugs greater than or equal to large commercial quantity.
• One count of failing to comply with digital evidence access order direction.   

The 27-year-old woman, known for her appearance on The Bachelors Australia, was charged with supplying a prohibited drug in a commercial quantity, possessing a prohibited drug, and breaching bail conditions.

All defendants were refused bail until a court appearance.

Money laundering through cryptocurrency 

In 2022, criminals laundered around $23.8 billion through cryptocurrency exchanges, an increase of 68 percent on 2021 estimates. In Australia, it is also estimated that at least 70 percent of the country’s serious organized crime threats are “based offshore or have strong offshore links”. The crypto laundering trend has prompted a response from Australian regulators, which have moved to expand the range of digital asset-related services that are subject to anti-money laundering and counter-terrorist financing (AML/CTF) regulations in line with global Financial Action Task Force (FATF) Standards.

Separately, on October 16, 2023, the Australian Treasury announced that it plans to release draft legislation concerning licensing and custody regulations for crypto asset providers by 2024. Once the legislation is passed, exchanges will have a year to transition to the new regime.

Changjiang Currency Exchange

The scale of Australia’s crypto laundering trend was further brought to light on October 25, when the AFP made seven additional arrests following a 14-month investigation into Changjiang Currency Exchange, a retail money-transfer business. The police claim that the exchange helped criminals launder almost $230 million in illicit funds and tainted cryptocurrency over the past three years. Officers seized multiple luxury cars, including a $420,000 Mercedes-Maybach GLS, and a Balwyn North mansion valued at $10 million.

“The reason why this investigation was so unique and complex was that this alleged syndicate was operating in plain sight with shiny shopfronts across the country – it was not operating in the shadows like other money-laundering organizations,” said AFP Assistant Commissioner Stephen Dametto.

According to the police, the majority of Changjiang’s customers used their services for legitimate purposes such as foreign currency exchange and sending money overseas. However, the police also allege that Changjiang collaborated with criminals to conceal the proceeds of criminal activities, including online scams and trafficking of illicit goods, and transfers money in and out of Australia.

The AFP claims the gang had been coaching criminals on how to create fake paperwork, such as false invoices and bank statements, to hide the origins of their money. Additionally, the AFP alleges that criminals have been charged higher fees than ordinary customers.

Crypto laundering red flags

To detect and prevent money laundering, compliance teams at cryptocurrency service providers should be vigilant for suspicious transactions and suspicious customer behavior. In 2020, the FATF published a report outlining the red flag indicators of crypto laundering, including:

• Transactional behavior: Cryptocurrency service providers should exercise caution when dealing with multiple transactions in small amounts, transactions that do not align with a customer’s risk or wealth profile, regular transactions that frequently result in losses, or frequent transactions of fiat to cryptocurrencies with no clear business justification. It is important to be vigilant and identify any suspicious activity to prevent potential fraud or illicit activities.
• Customer identity: It is common for individuals to attempt to exploit the anonymity benefits of cryptocurrency through customer identification measures. There are several red flags that may indicate such behavior, such as having multiple exchange accounts controlled from the same IP address, inconsistencies in identifying documents during account creation, or frequent changes in identifying information. These issues can serve as warning signs for potential exploitation.
• Money mules: Customers who make deposits that are inconsistent with their wealth profile or who are not familiar with the financial products they are using may be being used as money mules. 
• Source of funds (SoF): Cryptocurrency exchange service providers should also scrutinize the sources of cryptocurrency funds for indications of money laundering. Funds from sources linked to illegal activities, darknet sites, sites with inadequate AML controls, and sites located in countries known to present a high AML risk may be considered red flags.

The post Australian authorities dismantle international money laundering syndicate appeared first on ComplyAdvantage.

• Protection from misuse or loss of customer assets. 
• Provisions to allow asset recovery should a DPT provider become insolvent.

Call for Feedback: Customer Protection Amendments

The current Payment Services Regulations draft amendments are open for public consultation until August 3, 2023. The measures follow a previous 2022 public consultancy in which participants supported vital steps to protect customers, requiring firms to: 

• Separate customer assets from firm assets and hold them in trust. 
• Protect customer funds.
• Reconcile customer assets daily and ensure adequate documentation.
• Ensure operational controls and access are maintained for customers’ Singapore-based DPTs.
• Operationally segregate the custody function from other teams.
• Clearly disclose risks to customers regarding having the DPT service provider hold their assets.

In response to the 2022 consultancy feedback, MAS highlighted the importance of strictly segregating customer assets on a different blockchain address. The authority rejected the proposal to allow the commingling of assets with customer consent, citing recent virtual asset vulnerabilities as creating too significant a risk.

Facilitation of Staking for Retail Customers Prohibited

In one of the more debated measures, MAS stated that DPT service providers would not be permitted to facilitate crypto staking for their retail clientele. The rationale for this prohibition is tied to a higher risk of asset loss to customers who have staked their digital currency. 

As an alternative to proof-of-work validation models, proof-of-stake models generate new crypto coins through a process requiring customers to stake their assets for a set time in hopes of being selected for a reward. Because the method requires customers to tie up assets for days, it is subject to volatility and exposes customers to potential loss of value. 

However, supporters of the practice point out the work that has gone into making the practice secure, alongside its speed and eco-friendliness, compared to much-discussed proof-of-work models. MAS stated it will “monitor market developments and consumer risk awareness as these evolve, and will take steps to ensure that our measures remain balanced and appropriate.”

Controls and Governance Requirements

In the same response to the earlier consultation, MAS emphasized that it would proceed with requirements for DPT service providers to “maintain adequate systems, processes, controls, human resources, and governance arrangements to ensure the integrity and security of customers’ assets.” The regulator highlighted that this includes segregation of duties, “operational controls” protecting customers’ cryptographic keys, and following risk management best practices outlined in its 2021 Guidelines on Risk Management Practices – Technology Risk.

It also called for the implementation of technological resources for sound risk management, stating:

MAS strongly encourages DPTSPs to take proactive steps to adopt technological solutions that enable the development of local custody solutions and strong risk management expertise, including putting in place appropriate and practical arrangements to keep such devices locally, that will strengthen the risk management controls of their business in Singapore.

Source: Monetary Authority of Singapore

Firms should study the consultation and remain on the lookout for upcoming related guidance, which the MAS will publish to support compliance.

The post MAS Releases New Investor Protection Measures for Digital Payment Token Service Providers appeared first on ComplyAdvantage.

The new guidance comes ahead of Hong Kong’s new VASP licensing regime, which is due to commence in June 2023. 

Access to Banking Services

As part of Hong Kong’s push to become a global crypto hub, the HKMA says AIs should avoid a “wholesale de-risking approach” that could exclude new industries or certain nationalities from specific products and services. Instead, firms should ensure legitimate businesses have fair access to services by understanding the risks and implementing responses consistent with a risk based approach. To ensure this understanding is shared across an organization, the regulator notes the importance of providing staff with relevant training and up-to-date information.

Additionally, the HKMA outlines the following action points for AIs to support the digital-asset sector:

• Review all account opening procedures and customer due diligence (CDD) measures.
• Support the Tiered Account Services initiative that promotes financial inclusion in Hong Kong.
• Offer “Simple Bank Accounts” to meet the needs of small and medium-sized enterprises (SMEs) and start-ups that only require basic banking services, such as payroll. 

Hong Kong’s VASP Licensing Scheme

In December 2022, the Legislative Council of Hong Kong passed an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), introducing a licensing regime for VASPs. The update aligns with Recommendation 15 set out by the Financial Action Task Force (FATF), which requires VASPs to be regulated for anti-money laundering and countering the financing of terrorism (AML/CFT) purposes. According to the FATF, VASPs should also be licensed and subject to effective systems for monitoring or supervision.

Under the amended AMLO, VASPs will need to:

• Apply for a license from the Securities and Futures Commission (SFC).
• Satisfy the “fit and proper test” and comply with anti-money laundering and counter-terrorist financing (AML/CTF) requirements, such as customer due diligence (CDD) and record-keeping.
• Regularly submit audited accounts and financial information to the SFC.
• Appoint at least two responsible officers who will be generally responsible for overseeing the operation of the licensed VASP and ensuring compliance with the AML/CTF and other regulatory requirements.

The regime was initially scheduled to go live on March 1, 2023. However, the HKMA has since moved the date to June 1, 2023, to provide VASPs with more preparation time. Once in operation, retail investors in Hong Kong will be able to trade major tokens, including Bitcoin and Ether. Hong Kong’s largest virtual bank, ZA Bank Ltd., also plans to offer token-to-fiat currency conversions over licensed exchanges.

Key Takeaways

Compliance teams should ensure they review the circular’s annex, which details key observations and good practices related to onboarding corporate customers. Some of the expected standards identified by the HKMA include the following:

• Establishing guidelines and control measures to ensure customers’ applications are processed promptly and appropriately.
• Communicating expected timeframes to applicants and providing them with updates if their application has been delayed. 
• Only conducting additional CDD measures when offering correspondent services to international VASPs. (AIs are not required to perform additional CDD measures on SFC-licensed VASPs.)
• Conducting customer risk assessments that consider various risk factors instead of automatically applying enhanced due diligence (EDD) on customers from jurisdictions on the FATF grey list. 

The post Hong Kong Regulator Urges Banks to Support Regulated Virtual Asset Service Providers appeared first on ComplyAdvantage.

In the paper, the Australian Treasury explains that everyone who invests in cryptocurrency must include their assets in their tax returns. It also sets out the basis of a “token mapping framework” to help explain how various cryptoassets might fit into existing regulatory frameworks. 

The consultation period for this paper is open until March 3, 2023. The full list of consultation questions can be found in Annexure 4 on pages 52 and 53. 

Token mapping framework

In August’s joint statement, token mapping was highlighted as the “first step in a reform agenda,” as it would help the government identify how crypto assets and related services should be regulated. In the paper, “tokens,” “token system,” and “functions” are defined as follows:

• Tokens are physical or digital units of information that have a role in a token system
• A token system is a collection of steps involved in performing a function 
• A function can be any benefit ensured or facilitated by the token system to the token holder

This token mapping framework will be used to define the development of a custody and licensing framework, which the government is due to propose for public comment by mid-2023. 

According to our 2023 global compliance survey, these regulatory reforms are coming at an important time for Australian firms. When asked what crypto-based services they would offer in the future, 70 percent told us a trading or exchange service, 54 percent said crypto as a payment method or rail, and 51 percent a custodian or wallet service. 

Australia’s functional approach

The paper also discusses the concept of a “functional perimeter,” which would set Australia apart from other jurisdictions by adopting a broad “functional” definition of a financial product. This approach follows the policy adopted after the Wallis Inquiry recommended that the law adopt a broad definition of “financial product” so that “functionally-equivalent” products can be treated equivalently.

According to the paper, other jurisdictions have created an exhaustive list of regulated products and are often guided by risk-based approaches when updating the list to include novel financial products. The Hong Kong Securities and Futures Commission (SFC), for example, announced in January that it will propose a subset of tokens permitted for retail investors’ trading. According to the CEO of the SFC Julia Leung, only “highly liquid” assets will be on the list. 

Crypto scam concerns

These regulatory reforms come in light of rising concern regarding the increasing number of scams involving crypto. According to the Australian Securities and Investments Commission (ASIC), Australians caught up in cryptocurrency scams lost $701 million in 2021, representing a 135 percent increase from 2020. ASIC Deputy Chair Sarah Court said the main driver of this increase was crypto investment scams, where losses increased by 270 percent. The Australian Competition & Consumer Commission (ACCC) has also advised that crypto scam losses increased further in 2022.

In April 2022, AUSTRAC and the Australian Prudential Regulation Authority (APRA) released reports warning about the scale and risk management related to crypto assets. In particular, AUSTRAC included a list of financial and behavioral indicators linked to specific types of crime involving cryptocurrencies, such as illicit activity via darknet marketplaces, terrorism financing, scams, and tax evasion. Key red flags for compliance staff to note include:

• The customer’s wallet addresses show exposure to high-risk conversion services or darknet marketplaces
• An account receives multiple small deposits, which are immediately transferred to private wallets
• Public information or blockchain analysis tools indicate a customer has transacted with websites or wallet addresses considered to be high risk for terrorism activities or proliferation financing
• The use of services that do not make commercial or economic sense. For example, a business moving earnings through mixers or an individual converting a digital currency multiple times before cashing out, incurring additional conversion fees

Key takeaways

With new regulations coming in 2023, firms of all sizes need to devise a strategy for staying ahead of the latest developments. Three key steps to take include:

• Horizon scanning – firms should stay ahead of the curve by ensuring their compliance teams have adequate budgeting approved by senior management to address changes and that the right level of resourcing has been allocated to address regulatory changes

• Understand new requirements and impact – take the time to fully understand new requirements and the possible impact on operations, as new regulations may require adding a technology layer or developing a strategy to exit a pool of clients who are suddenly deemed to be breaking the law

• Contribute to regulatory consultations – this will help to ensure that laws are being developed that do not stifle innovation or lead to the development of regulations that could have a serious negative impact on the industry

The post Australian Government Begins Crypto Regulation Reform appeared first on ComplyAdvantage.

Pursuant to President Biden’s Executive Order (EO) 14067 on Digital Assets, the Treasury’s report took the form of a roadmap detailing how the government will bring greater transparency to the digital asset sector. Along with eight other reports from federal agencies, the Treasury’s action plan informed a new framework, published by the White House in September 2022, for the responsible development of digital assets.  

The comment period for the Treasury’s Action Plan ended on November 3. 

Regulatory Clarity and Public-Private Engagement

Speaking at the Crypto Council for Innovation, Rosenberg highlighted two specific issues repeatedly appearing in the report’s comment letters. Regarding the desire for further regulatory clarity, industry commenters asked questions about decentralized finance (DeFi) and being subject to sanctions obligations and regulatory anti-money laundering and combatting the financing of terrorism (AML/CFT) frameworks.

To ensure the DeFi industry has a clear understanding of its AML/CFT and sanctions obligations, the Treasury will review the specific issues the sector identified in the comments and explore how current questions and uncertainty should be addressed. Rosenberg noted that thought would be given to whether additional regulatory guidance will take the form of advice, outreach, or regulation. 

Second, Rosenberg commented on the industry commenters’ requests for more public-private engagement between the government and the virtual assets industry. Recognizing the industry has unique insight into illicit finance threats, Rosenberg said, “Stronger two-way dialogue can […] strengthen the US government’s understanding of technological innovations and changes, as well as create greater opportunities for industry to identify areas where these innovations may result in regulatory uncertainty.” 

Questions Around Privacy for Virtual Asset Transfers

Rosenberg also commented on some policy questions from industry commenters surrounding the Treasury’s approach to mixers following the designations of Blender.io and Tornado Cash. 

In May 2022, cryptocurrency mixer service Blender.io was sanctioned by the US after it was used in a heist backed by the Democratic People’s Republic of Korea (DPRK) to fund the country’s nuclear weapons and missile programs. Following this designation, in August 2022, another mixing service, Tornado Cash, was sanctioned for enabling cybercriminals to launder USD 7 billion in crypto since 2019. 

Rosenberg noted that while virtual assets can provide helpful insight into financial activities through public blockchains, which can be used to support AML/CFT compliance, some virtual asset users may desire privacy when conducting transactions. 

“Our goal and intention is not to deter the development of technologies that provide privacy for virtual asset transfers,” said Rosenberg. “We welcome opportunities to further engage with [the] industry on how these technologies can both promote privacy while also mitigating illicit finance risks and complying with regulatory and sanctions obligations.”

Further information on illicit financing risks associated with anonymity-enhancing technologies in the virtual asset ecosystem can be found in the 2022 National Money Laundering Risk Assessment. 

Key Takeaways

While the Treasury’s report is likely to play a significant role in shaping the future development of digital assets in the US, regulations will continue to be an ongoing and iterative process. Firms should stay up-to-date with the additional regulatory guidance and expanded engagement efforts the Treasury has committed to providing. 

For further reading, compliance staff should also familiarize themselves with the additional reports from federal agencies that highlight “a clear framework for responsible digital asset development and pave the way for further action at home and abroad.” The two other reports published by the Treasury in September 2022, include:

• The Future of Money and Payments
• Crypto-Assets: Implications for Consumers, Investors, and Businesses

The post US Treasury Follows Up On Action Plan to Mitigate the Illicit Finance Risks of Digital Assets appeared first on ComplyAdvantage.

Founded in 2021, DolarApp is a dollar USDc account for Mexico and Argentina. We met with co-founder and COO Álvaro Correa Gallardo to find out more.

Introducing DolarApp

Backed by investors such as Y Combinator and Kaszek, DolarApp was created to help solve the problem Latin American citizens face when trying to access banking in US dollars.

“After living and working across Latin America, from Panama to Mexico to Colombia, my co-founders and I realized the big existing problems people faced when trying to dollarize their finances, with some people ultimately traveling to the USA frequently just to be banked in dollars. People’s motives for wanting to dollarize their finances vary; some want to protect their savings in a more stable currency, some travel often to the US and need to pay in dollars frequently, while others work for companies in the US and receive a salary in USD. Until now, the only solutions for these problems were credit cards that might charge up to 3% foreign transaction fees, or remittance providers who charge around 5% transaction fees when making or receiving USD transfers. Ultimately this leads to a poor financial experience for people in LatAm just because of where they happen to be born”, said Correa.

While working at Revolut, Correa and his co-founders, Fernando Terrés and Zach Garman, began thinking about how to provide people in LatAm the ability to manage their everyday finances in USDc, achieving financial stability while avoiding these high fees.

From Peso to USDc and Back Again

“With DolarApp, users can get account details in Mexico and USA, allowing them to go from peso to USDc and back in a matter of seconds,” explained Correa. “Users can also invest in digital dollars, earning 3% annually, and pay with an international Mastercard with up to 4% cashback.”

Additionally, users can send and receive payments in the US for a flat fee of $3 versus the $3 fee plus a 2% charge that other money transfer companies charge. DolarApp supports this by offering both USA and México account details in the same app, which removes the need for remittances across the US-LatAm corridor.

DolarApp’s Social Impact

“The thing I love most about building DolarApp is that we’re solving a massive problem that drastically improves the lives of millions of people. Since we first launched our beta in June, we’ve seen massive interest in the product, which reinforces the demand is there and people love the initial offerings. I also haven’t seen other products available in the region that offer the kind of rewards and cashback that DolarApp does!”

What’s next for DolarApp?

DolarApp is currently working on improving their account details in the US for people in Latam by offering direct debit payments, expanding their product to more countries such as Argentina and enabling Apple Pay and Google Pay.

Are you an early stage FinTech and need a KYC and AML solution?

Ready your start-up for scale with free access to our transaction monitoring and customer screening tools through ComplyLaunch.

Register for ComplyLaunch today

Follow DolarApp:

Website
LinkedIn
Twitter
Facebook
Connect with Álvaro Correa Gallardo
Connect with Fernando Terrés
Connect with Zach Garman

The post ComplyLaunch Customer Spotlight: DolarApp appeared first on ComplyAdvantage.

While MiCA broadly applies to cryptoasset service providers (CASPs) providing crypto services to EU residents, some areas fall outside of MiCA’s scope. These include crypto-assets that:

• Are unique and not fungible with other crypto-assets, such as digital art and collectibles
• Qualify as financial instruments as defined under Directive 2014/65/EU, such as security tokens
• Represent services or physical assets that are unique and not fungible, including real estate or product guarantees
• Are offered for free, or are automatically created

Classification of crypto-assets

The MiCA bill introduces three sub-categories of crypto-assets based on whether an asset seeks to stabilize its value in relation to other assets. These include asset-reference tokens, e-money tokens, and other crypto-assets.

Asset-reference tokens are assets that maintain a stable value by referencing several currencies, one or several crypto-assets, one or more commodities, or a combination of such assets. Contrastingly, e-money tokens are assets that aim to stabilize their value by referencing only one official currency, such as stablecoins. All other crypto-assets that do not fall into either of the aforementioned groups make up MiCA’s third sub-category. 

CASP requirements

Under MiCA, potential retail holders of crypto-assets must be informed about the characteristics, functions, and risks of the crypto-assets they intend to purchase. Therefore, CASPs will be required to compile a whitepaper containing general information on the

• Issuer and offerer
• Rights and obligations attached to the crypto-assets
• Underlying technology used for such assets
• Related risks

Prior approval for marketing communications will also be required for asset-reference and e-money tokens. All advertising messages and marketing materials should be fair, clear, not misleading, and aligned with the information provided in the crypto-asset whitepaper. 

Further requirements for asset-reference tokens and e-money tokens include regulatory approval before launching new services and vetting key management personnel. Regarding management, the bill notes that issuers of asset-referenced tokens should have robust governance arrangements, including a clear organizational structure and effective processes to identify, manage, monitor, and report the risks to which they are or might be exposed.

More information on the key takeaways for CASPs can be found here.

Next steps

The MiCA bill points to a more comprehensive, strategic view of crypto assets being adopted by the EU and a greater understanding of how they integrate into the broader financial services ecosystem. 

Before the act can be signed into the Official Journal, it must be voted on at a European Parliament plenary session, possibly in November. If no amendments are made, the bill will move on and be signed into law during December’s plenary session. From then, crypto firms will have up to 18 months to prepare themselves for the changes, with the bill likely coming into effect in 2024.  

The post EU Lawmakers Approve MiCA Bill to Regulate Crypto appeared first on ComplyAdvantage.

The reports urge agencies to promote innovation by kickstarting private-sector research and helping cutting-edge US firms establish themselves in global markets. They also call for measures to mitigate risks, including fraud, theft, and crypto-asset mismanagement. 

The fact sheet is structured around seven recommendations for federal agencies:

• Protecting consumers, investors, and businesses 
• Fostering financial stability
• Countering illicit finance
• Reinforcing US financial leadership and economic competitiveness
• Promoting financial inclusion
• Advancing responsible innovation
• Exploring a US central bank digital currency (CBDC)

New framework and policy recommendations

The reports encourage federal agencies to issue guidance to address current and emergent risks in the digital asset ecosystem to protect consumers, investors, and businesses. Similarly, the US Treasury will work with other agencies to foster financial stability to identify, track, and analyze emerging strategic risks related to digital asset markets. 

Identifying and understanding these risks is also key to effectively fighting the illicit use of digital assets. As part of this effort, the Treasury will complete an illicit finance risk assessment on decentralized finance by February 2023 and an evaluation of non-fungible tokens (NFTs) by July 2023.

To reinforce the US’ global financial leadership and competitiveness, federal agencies recommend the expansion of leadership roles in digital assets work at international organizations and standard-setting bodies, including the G7, G20, and the Financial Action Task Force (FATF).

To promote financial inclusion, federal agencies recommend building a federal framework for nonbank payment providers and encouraging the adoption of instant, 24/7 payment systems such as FedNow. The Federal Reserve plans to launch this system in 2023. The development of new financial technologies such as this is a priority of the new framework, with the agency reports recommending the instigation of a Digital Assets Research and Development Agenda. The Treasury has also been encouraged to provide innovative US firms with regulatory guidance, best practice sharing, and technical assistance.

The final section of the fact sheet notes that the Biden Administration has already developed policy objectives for a US CBDC System. To support the Federal Reserve’s efforts and to advance other work on a potential US CBDC, the Treasury will lead an interagency working group to leverage cross-government technical expertise.

Key takeaways

The framework and reports outlined in this fact sheet are likely to play a significant role in shaping the future development of digital assets in the US. However, the development of regulations for digital assets will be an ongoing and iterative process shaped by input from federal agencies and the public. 

Compliance staff should pay particular attention to plans of action highlighted in the fact sheet and, more specifically, ensure they are familiar with the US Treasury report on addressing the illicit financing risks of digital assets. The priority actions recommended by the Treasury include:

• Improving global anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation and enforcement
• Updating Bank Secrecy Act regulations
• Strengthening US AML/CFT supervision of virtual asset activities
• Engaging with the private sector
• Supporting US leadership in financial and payments technology

Further reading

The reports submitted to President Biden to date, according to each federal agency, are as follows:

• US Department of Justice
  • How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets
  • The Role of Law Enforcement in Detecting, Investigating, And Prosecuting Criminal Activity Related to Digital Assets
• US Treasury
  • The Future of Money and Payments
  • Crypto-Assets: Implications for Consumers, Investors, and Businesses
  • Action Plan to Address Illicit Financing Risks of Digital Assets
• The White House, Office of Science and Technology Policy (OSTP)
  • Climate and Energy Implications of Crypto-Assets in the United States
  • Technical Evaluation for a US Central Bank Digital Currency System
  • Technical Design Choices for a US Central Bank Digital Currency System
• US Department of Commerce
  • Responsible Advancement of US Competitiveness in Digital Assets

The post White House Issues First-Ever Digital Asset Development Framework appeared first on ComplyAdvantage.

The government believes no other country has conducted a token mapping exercise. It will focus on better understanding how Australians use crypto-assets and the gaps in current regulatory frameworks. A core theme of the government’s statement is consumer protection and the need to “provide additional consumer safeguards.”

Token mapping was a core recommendation of an October 2021 review by a parliamentary select committee into Australia as a technology and financial centre. The committee’s reasoning focused heavily on the rise of Decentralized Finance (DeFi) and, in particular, the growth of DeFi protocols and blockchain projects using Decentralized Autonomous Organization (DAO) models. DAOs feature governance models that enable stakeholders to vote, making decisions collectively rather than through a centralized entity or designated person. For example, some DAOs are used to launch crypto-backed stablecoins. 

A “serious approach” to crypto regulation

The Morrison government, which left office in May 2022, had announced a consultation on a proposed Digital Services Act. Built around four pillars that included technology neutrality, flexible principles, direct ministerial oversight, and cooperation, the plan included a framework for DAOs. However, the Albanese government will pause these plans while it conducts the token mapping work: “The previous government dabbled in crypto-asset regulation but prematurely jumped straight to options without first understanding what was being regulated.” 

Nonetheless, Australia’s policymakers recognize the potential upsides of acting fast. Noting that examples of DAO legal structures globally are “limited,” the parliamentary committee highlighted that the US state of Wyoming legislated in this area and has attracted “significant business activity” as a result of its “proactive stance.” 

The race to establish frameworks and manage arbitrage

Regulators in other major regional economies are still grappling with regulatory arbitrage related to the crypto-asset space. In July 2022, South Korean regulators intervened to tackle so-called “kimchi premium dealers.” These dealers buy tokens, including bitcoin, overseas before selling them for a profit through domestic crypto exchanges. In August, the country’s Financial Intelligence Unit (FIU) took action against 16 foreign-based firms it believes have been conducting business without the appropriate authorizations under the Financial Transactions Report Act. 

Meanwhile, Hong Kong is preparing to launch its virtual asset service provider (VASP) licensing regime, which its government believes will be one of the most comprehensive in the world. License applications for covered firms must be submitted by December 1st, 2023. 

Next steps

The announcement from the Australian government represents the first step in a likely years-long process toward legislating to deliver a comprehensive regulatory framework. In the meantime, firms should keep abreast of the latest announcements and in particular, look out for the public consultation paper on token mapping. The government has pledged to issue this “soon.” 

The post Albanese Government Launches Crypto Token Mapping Exercise appeared first on ComplyAdvantage.