No More Anonymous Crypto Exchanges: FATF Document Proposes Strict User Identification

A document with a potential global influence on regulations may urge all crypto exchanges to track user identity for all deals above $1,000.

In 2019, the era of the “free for all” cryptocurrency exchange market may be over. The recently released Financial Action Task Force (FATF) paper reveals a position demanding strict know-your-customer procedures for even relatively small digital asset sales.

“In cases where a [Virtual Asset Service Provider] VASP carries out an occasional transaction, however, the designated threshold above which VASPs are required to conduct CDD is USD/EUR 1,000…” the paper suggests.

In the past, exchanges had various tiers for verification, with the possibility for totally anonymous exchanges between two coins. Now, even crypto-to-crypto exchanges may be subject to at least an email verification. For large-scale orders, a complete profile including passport or even a live verification may be required.

Transactions under $1,000 are considered “occasional”. However, even for digital asset ATM, there may be a requirement for the machine operator to register as VASP.

The FATF document also discusses the potential risk for each country, based on the fact that digital asset transactions can be used to obfuscate the identity of sender and receiver. The biggest concern is for countries and territories where digital assets may be used for money laundering and terrorism financing.

The FATF recommendation, in fact, goes to country governments, which would be the central estimators of risk for the usage of digital assets. The document shows the growing awareness of the problems posed by the attempt to create anonymous transactions. The recommendations may lead to increased government vigilance regarding the potential of digital currencies for money laundering and terrorism financing.

In the past years, regulators caught up with exchanges, and most leading market operators were quick to pass restrictions. The most recent wave of limitations concerns US-based traders, who either lost access to some types of coins, or lost access to international markets. In the past, some types of assets, anonymous coins such as Monero (XMR) and ZCash (ZEC) were also excluded from Asian exchanges.

Bitcoin (BTC) now reaches a market capitalization above $191 billion’s equivalent. Depending on markets and exchanges, it is theoretically possible to liquidate millions or even tens of millions of dollars, creating significant opportunities for obscured money transfers.

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