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News Anti-money laundering regulation in crypto asset transfers

Anti-money laundering regulation in crypto asset transfers


IN our repeated study of fintech regulations, I came to learn of steps taken by the European Union in regulating digital assets. One crucial aspect is the prevention of money laundering.

It is no secret that the rise of cryptocurrency has also increased its potential for misuse for money laundering and evading conventional anti-money laundering regulations. Unlike in dealing with traditional financial institutions, cryptocurrency exchange users do not have to identify themselves when transferring assets. Cryptocurrency transactions are often cryptographically secured and identifiable only through a user’s exchange account or crypto wallet address.

Furthermore, these transactions occur quickly, sometimes in a matter of seconds, offering money launderers increased efficiency and concluding transactions before these are even detected by regulators. It is estimated that in 2021, $8.6-billion worth of cryptocurrency was laundered.

To address this risk, European officials and lawmakers have agreed on anti-money laundering measures in the cryptocurrency space. The EU has provisionally agreed to update the rules on information accompanying fund transfers by extending the scope of those rules to transfers of digital assets. The rule ensures financial transparency and will provide the EU with a framework compliant with international standards on the exchange of crypto assets on money laundering and terrorist financing. Through enhanced traceability of transfers, the regulation intends to make it difficult to circumvent existing anti-money laundering and terrorist financing regulations. The EU agreed on the urgency of the regulation and decided to align the timetable for its application with that of the markets in crypto assets regulation.

Interestingly enough, in the Philippines, the Securities and Exchange Commission (SEC) has long enforced anti-money laundering and anti-terrorist financing regulations. Way back in 2018, the SEC issued the 2018 Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism for SEC Covered Institutions or the 2018 AML/CFT Guidelines. The covered institutions include securities brokers, investment company advisers/fund managers, investment advisors, lending and financing companies, and other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, cash substitutes and other similar monetary instruments or property regulated by the SEC. The guidelines set out the adoption of a comprehensive and risk-based Money Laundering and Terrorist Financing Prevention Program as well as strict rules on written client identification and acceptance policies and procedures, client retention policies and customer risk-assessment and risk-profiling, AML/CFT personnel training, internal controls and audit, compliance officer appointments, and reporting and record-keeping.

The EU proposal is one of the many global developments as financial regulators try to keep pace with innovations in technology. Against this backdrop, the SEC is keeping an eye on EU development, which aims to rein in the Wild West that is the cryptocurrency space. In the United States, the legislature is also working on its own framework to regulate digital assets. The SEC is closely studying all these in the hope of taking best practices in fintech regulation and adopting it in our jurisdiction.

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