FATF Guidelines on Virtual Currencies

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FATF Guidelines on Virtual Currencies

The FATF has published a paper on Guidance for Virtual Currencies.


According to the dispatch the greatest risks with virtual currencies come from the anonymity of virtual currency systems, and that any financial institution has to develop effective know-your-customer procedures, or the financial institution may have to de-risk out of the growing sector. The enhanced due diligence required of virtual currency payment products and services under the FATF guidance could lead to de-risking them out of the financial system entirely.

The FATF guidance suggests possibly developing or using “third-party digital identity systems” to make it easier to meet anti-money laundering compliance requirements. The systems could, for instance, create electronic identity signatures that meet specific customer due diligence, monitoring and reporting purposes, the guidance says. Of course, the custodians of the identities would themselves need to be regulated.

It is to be expected.  I think this will be a way to force virtual currency clients to get an OK by a bank before they are able to set up a virtual currency customer account.  It is forcing the virtual currencies for a licensed bank tie up.  It is a way for a bank to use all of the amazing KYC material they have been assembling.

To quote me in an article on the Future of Financial Institutions:

“The KYC demanded on all clients on boarding will continue to grow in scope and depth. The flip side of this is that now these very same expenses can be a source of revenue. Financial institutions could become identity vouchers having checked and doubled checked a background – like a seal of good background keeping.   Combine this with the ability to analyze and use the information on their clients, could provide an insight to a client on simple issues such as creditworthiness or the need for additional financial products, like insurance.   A good financial institution will really know their customers.   This information when aggregated can also be used for marketing or for possible screening applications, such as for employment.   Mind you some laws and or permissions would need to be addressed.”


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It also may be a way to tease out the competition from “Shadow Bankers” to stem the disintermediation of banks from the financial transactions we are seeing today.

As usually it is another directive by the FATF to preserve the old and ignore the new. The FATF is excellent at resolving all ambiguity negatively with some pretty poor research.

For me, virtual currencies are only going to be attractive for those small transfer and purchases that encounter too much cost or friction by standard – or current payment methods.

It is worth a read – at a minimum to see what they are up to and what we can expect in the way of laws and regulations to come forward, as the FATF is a division of the OECD and the US is a member of the OECD.

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