Since the International Financial Action Task Force (GAFI) introduced its controversial “Travel Rule” or travel rule in Spanish for companies in the crypto space, The debate about the suitability of the applicable legal framework for cryptocurrencies was relentless..
However, some experts believe that the industry’s experience with the FATF guidelines is only the tip of the iceberg and creates greater challenges later on.
Siân Jones said so during the closing panel of the V20 conference on November 18 The collision between new decentralized financial models and older regulatory models has implications that both regulators and the community do not yet directly address.
XReg Consulting, of which Jones is a Senior Founding Partner, is a group of former regulators with hands-on experience developing public policies and regulations for blockchain and crypto assets. During the panel, Jones said that The FATF’s general anti-money laundering framework, and particularly its travel policy, emerged from a completely different operational and technical era– The years when structures like SWIFT were widespread and transaction finance was globalized are long gone.
The founding members of SWIFT, with 239 banks in 15 countries, were well funded and part of a mature banking industry, Jones said. In contrast, the units defined by the FATF as Virtual Asset Service Providers (VASPS) come from a much younger and less established area. Because of this, enforcement of the travel rule and the expectation that these companies will be able to implement it this quickly “puzzles me,” said Jones.
Despite these significant difficulties, Jones said that The FATF framework, as narrow as it may be, could be reconciled with the parts of the cryptocurrency industry that have been “industrialized,” that is, mediated precisely through the entities defined as VASPs.
Over time, however, more and more participants in space are trying to recreate the original vision of cryptocurrencies that began through projects like Bitcoin (BTC) and Ethereum (ETH): a real disintermediation of transaction finance.
The nascent decentralized finance space is precisely that attempt to return to the original goals of crypto, and as it grows, much of the crypto will fall behind from brokered structures.
DeFi developers and users as well as regulators need to “open their eyes,” said Jones. That original spirit and decentralized model for cryptocurrencies, which aims to conduct truly trustworthy transactions, is “fundamentally at odds with how the FATF achieves its money laundering prevention goals,” he said.
In the future, Jones said that DeFi developers and users need to come together as one voice to provide effective feedback to the FATF.
Regulation comes to DeFi whether we like it or not, he said, but if those involved feel that frameworks like the FATF travel rule don’t match the magnitude of money laundering risks in their area, then they need to “step up their game.” and submit an argument yourself.
The supervisory authorities must also recognize this: While the older models used by the FATF may work for a still-brokered crypto world, they don’t necessarily work for DeFi.