Crypto regulation in the world: weekly digest #89

IMF

The International Monetary Fund has issued a new report on digital money implementation in the Pacific Island Countries (PICs) region that highlights the potential benefits and risks associated with the adoption of digital money, focusing on enhancing financial inclusion and payment efficiency. The report emphasizes the importance of a well-informed and gradual approach tailored to the unique monetary and financial circumstances of the region. It discusses the development of digital money and payment systems in PICs, exploring options like stablecoins and central bank digital currencies (CBDCs) to address challenges such as low financial inclusion, inefficient cross-border payments, and risks to financial integrity.

The report underscores the transformative impact of digital money on financial development and inclusion, emphasizing the need for stable, secure, and accessible digital infrastructure. Additionally, it advocates for a regional approach to digital money exploration to overcome capacity and scalability challenges in introducing new forms of digital money. Policymakers in PICs are keen to leverage digital money opportunities to develop payment systems and promote financial inclusion, recognizing the potential of digital money to advance public policy goals and improve cross-border connectivity.

The report suggests that stablecoins, particularly foreign currency-backed stablecoins, could be a viable alternative for countries without their own national currencies. Instead of issuing their own sovereign stablecoins due to limited oversight capacities it advises smaller Pacific Island countries to investigate the potential benefits of stablecoins backed by foreign currencies in enhancing financial inclusion, improving payment efficiency, and mitigating the loss of correspondent banking relationships in the region. Additionally, the report emphasizes the importance of stringent regulation and supervision for stablecoins to ensure their stability and security in the financial ecosystem of the Pacific Island countries.

Previously, the IMF and the Financial Stability Board have published a joint report on cryptocurrencies to provide guidance and help various jurisdictions address risks associated with them by combining the standards and consolidating collective recommendations.

FATF

The global AML watchdog, the Financial Action Task Force (FATF) has issued a report on the Status of implementation of Recommendation 15 by FATF Members, published on March 28, 2024. The report highlights the global efforts and challenges in regulating virtual assets and virtual asset service providers (VASPs). It indicates that many countries have not fully implemented FATF's requirements on virtual assets, leaving significant loopholes for illicit finance exploitation by criminals and terrorists. Only fewer than 30% of jurisdictions globally have started regulating the crypto sector, as revealed by the FATF Chief, emphasizing the urgent need for action to prevent misuse of virtual assets for illicit purposes.

The report underscores the importance of countries recognizing and evaluating the risks associated with money laundering and terrorist financing in the context of new technologies and emerging business models, as outlined in FATF Recommendation 15. It emphasizes the need for financial institutions to implement suitable measures to control and mitigate these risks before introducing new products or utilizing emerging technologies.

Furthermore, the report details the compliance levels of jurisdictions, categorizing them as compliant, largely compliant, partially compliant, or non-compliant based on criteria such as licensing or registering VASPs, conducting supervisory inspections, and enforcing regulations to prevent money laundering and terrorist financing risks associated with virtual assets. The FATF's «travel rule», which requires crypto service providers to collect and share transaction information, is also highlighted as a crucial aspect of regulatory efforts in the crypto sector.

The report serves as a call to action for jurisdictions to strengthen their regulatory frameworks concerning virtual assets and VASPs to combat illicit financial activities effectively and ensure global financial security.

USA

US law enforcement, including the Department of Justice and the Commodity Futures Trading Commission, has filed criminal charges against KuCoin, a cryptocurrency platform, for alleged violations, including money laundering and operating without implementing anti-money laundering policies. The charges allege that KuCoin concealed the presence of U.S. users on its platform, allowing it to become a major crypto exchange while facilitating illicit money laundering activities. These actions are part of a broader effort by U.S. authorities to regulate the cryptocurrency industry and hold firms like KuCoin accountable for their operations.

The world's largest cryptocurrency exchange, Binance, faced the exact same allegations last year. The cases involving Binance and KuCoin share some parallels, particularly in terms of security breaches and regulatory scrutiny. Binance's former CEO faced charges related to failing to maintain effective anti-money laundering measures, similar to KuCoin's indictment for violating the Bank Secrecy Act and operating without a license for transmitting money. Additionally, KuCoin had to pay $22 million in fines and refunds in New York for failing to register as a securities and commodities broker-dealer, a situation that reflects regulatory challenges faced by both exchanges.

In the end, Binance faced significant fines as part of the legal resolution. The cryptocurrency exchange agreed to pay a criminal fine of $1.8 billion and forfeit $2.5 billion, resulting in a total of $4.3 billion in fines, making it one of the largest corporate agreements in U.S. history. Additionally, Binance's CEO, Changpeng Zhao, was fined $50 million as part of the settlement and was required to step down from his position as CEO. We’ll see how the KuCoin case develops.

News from other countries:

• Sam Bankman-Fried, a former cryptocurrency mogul and the founder of FTX, has been sentenced to 25 years in prison for his involvement in a massive fraud scheme, which included charges related to wire fraud, conspiracy to commit fraud, and conspiracy to commit money laundering.

• The Russian crypto exchange Garantex is under investigation by the United States and the United Kingdom for cryptocurrency transactions worth over $20 billion that may have violated Russian sanctions. The investigation aims to crack down on the use of crypto to evade sanctions and disrupt Russia's financial channels.

• The Ethereum Foundation is currently under investigation by an undisclosed state authority, as reported in various sources. The investigation, disclosed on the group's GitHub repository, involves a requirement for confidentiality and coincides with significant technological changes for Ethereum, including the recent Dencun upgrade. The SEC is reportedly examining whether Ethereum should be classified as a security, which could have far-reaching implications for the cryptocurrency industry.

We continue to highlight the news of the world of crypto regulation worldwide. Please stay with us!