There is a revealing, albeit slightly morbid, maxim that “safety standards are written in blood.” Humans and human-created systems generally tend to be reactive rather than proactive when it comes to developing protective rules. Nevertheless, today’s construction workers and consumers are more shielded from danger than those of the past because we’ve learned from prior mistakes.
Rick McDonell was the executive secretary of the Financial Action Task Force from 2007 until 2016. Prior to that, he was chief of the United Nations Global Program against Money Laundering at the UNODC. He is now executive director of ACAMS, the Association of Certified Anti-Money Laundering Specialists.
The same dynamic exists in financial regulation, where it could be said that “financial standards are written in fraud.” For example, the U.S. Securities and Exchange Commission didn’t exist in the first iterations of the stock market. It was only after “Black Tuesday,” the 1929 stock market crash so severe that it was a major contributing factor to the Great Depression, that new laws and regulations were introduced that continue to define modern finance. But the world has morphed into two: the real world and the virtual world. The old rules do not suit either of them.
See also: FATF Says It Is Open to Amending Crypto Travel Rule Guidance
Parts of the cryptocurrency industry have been culturally slow to accept and implement compliance requirements of the existing (traditional) financial system. This extends from basic know-your-customer (KYC) protocols to the more challenging requirements of the “Travel Rule.” Companies offering services in the crypto industry – commonly called “virtual asset service providers,” or VASPs – need to comply in full force and spirit with global anti-money laundering and counter-terrorism financing conventions or risk being sanctioned or shut out by regulators or criminally pursued by law enforcement if they intentionally breach the law in jurisdictions in which they reside or operate.
Practically speaking, governments have very little incentive to change the rules to accommodate crypto but have significant incentive to insist on a level playing field with traditional financial institutions. While cryptocurrencies and virtual assets are digital, the reality is that VASPs still need to operate out of countries. Governments might be behind the curve on crypto but they are quickly catching up, and VASPs should be prepared to be held to the same standards as the rest of the financial system.
For example, the Financial Crimes Enforcement Network (FinCEN), a U.S.-based regulator that is also a bellwether of global financial regulatory enforcement, recently proposed lowering the threshold of the Travel Rule from $3,000 to $250.
See also: Campbell-Verduyn/Moritz Hutten – Is the Travel Rule Good or Bad for Crypto? Both
The Travel Rule requires financial institutions transferring money across international borders to…