New Rules and Technologies are required for Digital Currencies . More forward-thinking Legislation is Required

Regulators must collaborate with technological professionals to address crypto-crimes such as money laundering and terrorism financing.

New Rules and Technologies are required for Digital Currencies

Even though digital currencies have been around for a decade, the regulatory systems that regulate them are fragmented, ineffectual, and in some cases non-existent. Illicit activities flourish as a result, from rogue Bitcoin traders who disappear with your money to terrorism financing and international money laundering.
Because digital currencies are here to stay, international cooperation and individual country action are needed to close the legal gaps that allow cryptocurrency crime to thrive. In a webinar held by Absa in collaboration with the World Economic Forum’s Global Futures Council and the Financial Action Task Force, financial and regulatory professionals from around the world explored digital currencies and the money-laundering concerns they pose (FATF).
The challenge for regulators around the world is to establish adequate regulatory instruments to handle the dangers associated with increased cryptocurrency use. Existing regulatory tools are limited in their ability to handle consumer and financial crime, as well as money laundering issues. As a result, regulatory scrutiny of cryptocurrencies has intensified, as money launderers have turned to digital currencies like Bitcoin, Ether, and Ripple to “cash-out” their earnings, rapidly and anonymously bouncing transactions around the world.
The Bank of International Settlements (BIS), which is owned by 63 member central banks and monetary authorities from around the world, has declared that “cryptocurrencies are not money, but speculative assets that can be used to facilitate money laundering, ransomware attacks, and other financial crimes,” signaling a significant shift in regulatory thinking.
This viewpoint is based on the fact that more than 60 central banks have launched digital currency initiatives since 2014, indicating that some central banks see central bank digital currencies as a preferable method of safeguarding the financial system’s integrity over time.
The recent volatility of Bitcoin has also generated serious doubts about cryptocurrencies’ long-term viability as an asset class. Similarly, the surge in ransomware and other financial crime instances has raised worries about regulation and how to address increasing Anti-Money Laundering/Combating Terrorism Financing (AML/CFT) dangers.
For the financial industry, policymakers, and consumers, these new forms of money bring both potential and challenges. Digital currencies can make foreign payments more effective, convenient, and secure by eliminating the inefficient operational and security processes associated with the movement of traditional money, hence increasing overall economic efficiency.
However, as more ordinary people invest in cryptocurrencies and institutional investors add them to their portfolios, major problems about financial stability and the prevention of money laundering and terrorist financing arise.
When it comes to combating these crimes, regulators must collaborate with technological specialists to ensure that their laws remain current. Furthermore, regulators must be forward-thinking and create regulations that are suited for purpose rather than trying to avoid the inevitable.
Collaboration is also critical because digital assets necessitate regulation through international cooperation, local enforcement, and agencies technologically equipped to keep up with these rapid changes.
In 2019, the Financial Action Task Force (FATF) issued guidelines requiring governments to analyze and manage the risks associated with crypto asset activities and service providers. It demanded that service providers be registered and monitored by national authorities. Despite this, barely a quarter of countries have followed the guidelines, according to the FATF.
While some jurisdictions have put in place anti-money laundering regimes and sanctioned dealers who do not comply, the lack of global uniformity could let criminals simply shift to unregulated countries.
The FATF is changing its guidelines and encouraging countries to share more information. It agrees that strong rules would not suffocate innovation, but would instead enhance the industry and contribute to increased economic growth.
Buying crypto-assets is not regulated in South Africa, and according to Ronald Lamola, Minister of Justice and Correctional Services, this lack of protection has left customers highly exposed, with some hopeful investors losing their money.
The “know your client” (KYC) protocol has been applied by several trading platforms and financial institutions, although it is not a standard practice. This makes us exposed to money laundering and terrorist financing syndicates, as well as attempts to circumvent exchange regulations and hide illicit financial flows by purchasing crypto-assets.
With united responses to evolving trends, inter-governmental collaboration is essential for creating an adaptable but effective regulatory framework. While the police, the Hawks, and the South African Revenue Services already have an inter-departmental working group investigating financial fraud, there are proposals to expand that intelligence center to include crypto-assets service providers.
CBDCs, or Central Bank Digital Currencies, are another type of emergent digital asset. The People’s Bank of China is working on about 20 CBDCs, to replace physical cash with a digital currency known as the e-RMB or digital yuan. Citizens in China can download an app and enter a lottery to win money to spend with designated service providers as part of a pilot initiative in multiple locations.
While the Chinese pilot project is a massive infrastructure project, participants agree that the digital yuan is convenient, efficient, and safe. CBDCs would improve international trade, and China’s early mover advantage, along with its currency’s security, might make it international.
One problem is figuring out how to get different CBDCs to engage with one another, and the International Monetary Fund is looking into the use of digital currencies across borders. The impact of this “currency substitution” if a foreign system is used in parallel to a home currency, as well as whether it will undermine the domestic currency and influence exchange regimes, are all being debated.
Blockchain technology is helping the world to think about money and economic ideas in new ways, resulting in much-needed financial sector innovation. Digital currencies could provide a great experience all around the world once scalability issues with blockchain are resolved and technological solutions lower the risk of fraud.
Previous financial crises have demonstrated how intertwined the world’s systems are, and the speed with which crypto assets can move implies that authorities will struggle to monitor, stop, or reverse transactions across those huge networks. To police the situation, cross-border communication is critical, particularly between technology bureaus.
The truth is that cryptocurrencies have been there for a decade, and financial institutions should have acted sooner, but concerns like anonymity, which allows crypto-crime to thrive, cannot be handled by existing legislation or procedures.
We must execute things correctly and thoroughly for them to last in the long run. This may entail going a little slower, but if we want to be effective, we need rules and tools that are appropriate for the job.

Source: The Print

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