tokenist.com
Within a decade, the crypto space transitioned from financial privacy haven to a compliance race. The latest uptick in know-your-customer (KYC) and anti-money-laundering (AML) compliance suggests that the race is in the end stage.
Bitget No Longer Tropical Crypto Haven
Starting from October 1st, crypto exchange Bitget will no longer allow existing users to trade without completing the level 1 KYC procedure, which includes a government-issued ID. Otherwise, they may only withdraw funds and close existing market positions.
This is indicative given that Bitget, servicing 20 million global users, is based in Seychelles. This archipelago is known for its liberal capital controls and low corporate tax rate to attract investors. From September 1st, level 1 KYC requirements will apply to all new Bitget customers.
According to CoinGecko, Bitget holds $1.34 billion worth of funds across 563 digital assets, mainly trading in BTC/USDT and ETH/USDT. Interestingly, USDT makes up 98.6% of Bitget’s total trading volume, with EUR and GBP making less than 1%.
OKX Joins Bitget in KYC Compliance
Another Seychelles-registered crypto exchange, OKX, offered its customers similar compliance deadlines. OKX users have until September 21st to complete a 3-step KYC verification process. This is unsurprising, as OKX announced plans to apply for VASP (virtual asset service provider) license in Hong Kong’s new crypto regulation framework.
Consolidating user verification via the new KYC/AML regimen is a likely outcome in pursuing other licenses.
Like Bitget, OKX is in the top 11 exchanges by trading volume, just behind Binance US, holding nearly $9.5 billion across 335 cryptocurrencies. In June, OKX introduced the BRC-30 token standard, enabling users to stake either their BTC or BRC-20 tokens to earn yields.
FATF: Driving Force Behind Global Crypto Regulation
The Financial Action Task Force (FATF) is not a talking point regarding elections in any country. G7 nations launched this organization in 1989 to track global financial markets. Specifically, to tackle money laundering and terrorism financing.
Over time, FATF’s reach spread far beyond G7 into a global regulatory force. This was noticeable in June 2022 when Panama’s President blocked a proposed crypto bill amid FATF pressure.
In October 2021, FATF delivered its initial draft on global crypto surveillance. This was the origin of the VASP designation.
“Creators, owners and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services.”
Since then, South Korea has been the first to implement updated FATF crypto guidelines. This includes a requirement for VASP-registered companies to disclose receiver/sender information if transactions exceed one million Korean Won (~$745).
However, exceptions remain even in regulated centers of global finance. The Swiss-based MtPelerin exchange doesn’t require KYC verification if the transaction threshold is under CHF 1,000 per day.
Regarding DeFi protocols, FATF introduced the phrase “sufficient influence” to fold them under VASP regulation and monitoring of users’ finances.
“creators, owners and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services.”
Crypto Hubs as FATF Spearheads
As a city-state with attractive tax rates and regulations, Singapore has also been a long-standing crypto and FinTech hub. However, as a FATF member, Singapore’s Monetary Authority of Singapore (MAS) updated its crypto exchange requirements.
Since July, alongside segregating customer funds, this included restriction for Digital Payment Token (DPT) service providers to offer staking or lending for retail customers.
FATF regularly scrutinizes Hong Kong and Singapore regarding their efforts to implement KYC/AML/CFT systems. Alongside these crypto hubs, FATF guidelines have come online in Japan and EU nations.
DeFi Next on the FATF Chopping Block
Still, FATF noted in July that global crypto surveillance is an ongoing process, finding that only “75% of jurisdictions assessed against the revised standards are only partially or non-compliant with FATF’s requirements.”
The critical obstacle to adopting FATF standards is the lack of compliance tool interoperability. This is likely a reference to the level of coordination between state and private actors. DeFi is particularly hard to crack as it is difficult to ascertain “sufficient influence.”
Privacy mixer Tornado Cash appears to have been a test case in that enforcement, resulting in the prosecution of developer Alexey Pertsev.
“If you as a bank don’t know where the money is coming from and haven’t yet built in any mechanism to look at that, then there’s a considerable likelihood that your service is laundering money,”
Dutch public prosecutor Martine Boerlage
Pertsev still awaits trial after having been released in April.