Innovation Vs Regulation
Cryptocurrencies have become one of the most challenging and at the same time concerning innovation of this decade for competent authorities around the globe.
When we hear the word ‘cryptocurrencies’, three fixations tend to pop up; price volatility, anonymity and, perhaps most of all, its enduring association with the darker corners of the internet.
A lot of the time, it feels like the gene is out of the bottle and the usual ‘reactive’ approach of the regulators is not going to be able to handle this huge innovation.
Like anything innovative, the digital coins such as Bitcoin and Ethereum can be utilised as genuine means of payments, at the same time, as they are de-centralised and out of scope for governments and authorities to supervise, they ultimately can also be used for illegitimate transactions involving financial and other type of crime.
Ethic & Morality vs Technology
The advanced and disruptive nature of Block Chain technology has brought up a lot of concern among competent authorities, furthermore, the digital currencies can be used to circumvent US, EU & UN sanctions.
Due to anonymity of chain of transactions on blockchain, the traditional reliance on source of funds verification is no longer available to prevent money laundering and financial crime. However, not all crypto assets are used for illicit purposes.
Technologies such as Elliptic https://www.elliptic.co/ are attempting to detect and prevent criminal activities in Crypto currencies.
The Virtual Financial Assets Act of Malta & 5MLD
In February 2017 the Malta’s prime minister made five proposals when speaking at CEPS Ideas Lab Conference in Brussels ‘Reconstructing the Union’:
‘Rather than resist, European regulators should innovate and create mechanisms in which to regulate crypto currencies, to harness the potential and better protect consumers, while making Europe the natural home of innovators.”
Malta is now the first country among EEA member states and globally to have a regulatory frame work for crypto currencies and ICOs, however the bill somehow still is worded in a way that relate to digital currencies as a form of asset with tangible backing. Technologists by their very own nature seek to bridge distances and destroy barriers. They are programmed to find technological solutions to existing problems. Technologists typically trail blaze ahead of regulation.
5MLD is due to come to national law by end of 2019, which has attempted to enforce a level of ‘enhances due diligence when dealing with crypto currencies:
‘Treatment of virtual currencies:
In the future, the obligations under money laundering law are to be imposed for the first time also on exchange platforms for virtual currencies such as Bitcoins and the providers of digital wallets for virtual currencies. In this context, electronic exchange offices where virtual currencies can be changed into fiat money and the other way round are considered exchange platforms. Digital wallets provide accounts that are denominated in virtual currencies and via which payments in virtual currencies can be rendered and received. It is doubtful whether these provisions are suitable to put an end to money laundering using virtual currencies, because virtual currencies can still be exchanged between private persons without any monitoring. Treatment of virtual currencies.’
My final words on this very hot topic is that financial services are going to have no choice but to catch up with Block Chain way of doing things and in more challenging dynamics such as virtual currencies. Our way of life is changing and I genuinely do not know yet if it is a bad or a good thing that regulations globally are yet to catch up with the innovations in technology. In 5 years’ time or sooner, virtual currencies will become the norm of our transactions and means for payments to say the least. I am very keen on educating and raising awareness in this area specially in my core line of professional interest that is combating money laundering and financial crime.