For many in the early days of digital currency, regulation was the enemy. Something the establishment needed to block or stifle the chances to compete with the establishment. But as the sector matures and regulation catches up, does increased regulatory oversight really have to be the blocker many viewed it as? For me, the answer is simple, no. I would go further and suggest regulation may just be the key that unlocks its long-term potential.
We are talking about a tech-savvy industry, that over the last couple of years has done much of the hard work, established its foundations and now seeks to remove the barriers to growth. One of these is finally accepting that it now needs to embrace the new requirements to comply with AML regulations.
This is a market we know well, and most cryptocurrency exchanges that I have spoken to are actively engaged in finding or have already implemented solutions because of the subconscious need to be meeting global regulations, and the desire to be seen to be doing ‘the right thing’.
What has changed?
Even though it is hard to put a figure on the potential scale of virtual currency misuse, given the size of the market, it is no real surprise over the concern that unregulated systems could offer the anonymity needed for criminals to use virtual assets to launder their profits. At that point, regulators were duty bound to step in and the EU’s Fifth Money Laundering Directive (5MLD) now means that virtual currency exchanges and custodian wallet providers are subject to the same regulatory requirements as other financial services covered by the preceding 4th directive.
5MLD regulation specifically demanded that cryptocurrency exchanges and wallets be registered with the competent authorities in their domestic locations. For example, the UK’s Financial Conduct Authority and Malta’s equivalent.
Any new disruptive technology comes with a degree of the ‘maverick’ about it. It wants to be different and take on the established authorities. It is what makes is stand out and that air of excitement adds to its innovative nature and vibrancy. Eventually however, establishing trust with its customers becomes the key driver. For it to ‘fit in’ and be widely adopted, digital currency needs to accept some of the key regulatory burdens that will deliver this.
How can the KYC / AML ‘burden’ be eased?
Regulators are much more willing to embrace the new kid on the block as they start to operate in a way that is much more familiar to them. Collaboration? Not quite. But with exchanges, regulators and customers converging, it makes for a powerful combination. We are not there yet, and we must be honest and say that some countries/jurisdictions are challenging, but we are making progress. Here at W2, we feel that by combing evolving data with emerging technology such as ‘liveness’ facial comparison, we are closer than we have ever been to a global solution.
I guess the final point for me is this. The key to the long-term sustainability will be how we deal with the most important asset any business has, the customer. Success in this sector will be won and lost on how we deal with the customer journey and refine the UX. As one industry supporter said recently ‘make it easy for the customer, they are worth it right?’ This is not just limited to the digital currency world; this is across all sectors.
The global lockdown has just added fuel to the fire and where once there was hesitancy, there is now a real drive to adapt and adopt the latest technology. And this is where I fully agree with our CEO (always a wise career move!) when he says, ‘it is about the Tech not the check!’ When it comes to the future in Digital currencies, I feel very positive about the opportunities ahead for all the stakeholders.
If you would like to speak to us to see how we can help in any of the areas I cover above, contact us