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Sha** Cryptocurrency Gatekeepers with a Regulatory “Trial and Error”

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Financial Cryptography and Data Security. FC 2023 International Workshops (FC 2023)

Part of the book series: Lecture Notes in Computer Science ((LNCS,volume 13953))

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Abstract

In the past fifteen years, cryptocurrencies have grown from a whitepaper released on a mailing list to an ecosystem supporting millions of transactions a day using a whole host of technology never imagined before. However, governments have been slow to keep up. We present an analysis of regulatory developments from within the EU and by the Financial Action Task Force (FATF). These regulatory responses focus on intermediaries such as cryptocurrency exchanges, and wallet providers. We trace the AML/CFT policy recommendations made by the FATF, and examine the EU’s Fifth Anti-Money Laundering Directive and upcoming Markets in Crypto-Assets (MiCA) regulation. Here we find a natural tension: the pace of regulation is slower than the pace of technology, so the scope is non-comprehensive, yet current trials to accelerate this pace are leading to subtle conflicting errors. These findings present a deeper understanding of the ongoing regulatory dilemma, its essence, and suggest directions for the future of cryptocurrency regulation.

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Notes

  1. 1.

    “Prohibiting banks and other financial institutions from dealing in cryptocurrencies or offering services to individuals/businesses dealing in cryptocurrencies or banning cryptocurrency exchanges are examples of implicit bans” [81].

  2. 2.

    Within the EU, the Anti-Money Laundering Directive (AMLD), is the set of robust rules responsible for the EU’s fight against money laundering/terrorist financing. The regularly amended directive aims at preventing the misuse of the financial system for economic/financial crimes, specifically ML/TF.

  3. 3.

    Art. 4 of the AMLD5 mandated member states to transpose the provisions of the Directive into national AML/CFT legislation by January 2020.

  4. 4.

    Art. 1(2)(d)(18), AMLD5.

  5. 5.

    Art. 1(2)(d)(19), AMLD5.

  6. 6.

    Para. 3 of the Interpretative Note to Recommendation 15.

  7. 7.

    Information includes: Originator and beneficiary names; account numbers or wallet numbers; originator’s physical address, official identification documents, place and date of birth. In Oct 2021, the FATF granted VASPs the authority to decline sharing customer information with other VASPs, on the count that the counterparty was unable to store the information securely for transactions with low risk of AML/CFT.

  8. 8.

    Paras. 105–107.

  9. 9.

    Recital 9, AMLD5.

  10. 10.

    Art. 1(29)(1), AMLD5.

  11. 11.

    Recital 9, and art. 1(41)(1)(g).

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Acknowledgements

This work was supported by the Engineering and Physical Sciences Research Council [grant number EP/S022503/1].

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  1. University College London, London, UK

    Marilyne Ordekian, Ingolf Becker & Marie Vasek

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  1. Marilyne Ordekian
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Correspondence to Marilyne Ordekian .

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  1. Western University, London, ON, Canada

    Aleksander Essex

  2. Georgetown University, Washington, DC, USA

    Shin'ichiro Matsuo

  3. IT University of Copenhagen, Copenhagen, Denmark

    Oksana Kulyk

  4. Imperial College London, London, UK

    Lewis Gudgeon

  5. Imperial College London, London, UK

    Ariah Klages-Mundt

  6. Imperial College London, London, UK

    Daniel Perez

  7. Imperial College London, London, UK

    Sam Werner

  8. Stirling University, Stirling, UK

    Andrea Bracciali

  9. University College London, London, UK

    Geoff Goodell

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Ordekian, M., Becker, I., Vasek, M. (2024). Sha** Cryptocurrency Gatekeepers with a Regulatory “Trial and Error”. In: Essex, A., et al. Financial Cryptography and Data Security. FC 2023 International Workshops. FC 2023. Lecture Notes in Computer Science, vol 13953. Springer, Cham. https://doi.org/10.1007/978-3-031-48806-1_8

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