UK cryptocurrency regulations may soon extend to monitor user wallets

UK cryptocurrency regulations have been the Financial Action Task Force (FATF) compliant, but it appears that the government may opt to monitor …

UK cryptocurrency regulations have been the Financial Action Task Force (FATF) compliant, but it appears that the government may opt to monitor user wallets.

To ensure money laundering is curbed, the Financial Conduct Authority (FCA) of the United Kingdom (UK) has proposed certain limitations for software programs that are built by crypto developers.

The Anti-Money Laundering and Counter-Terrorism Financing regulations are expected to be extended for entities or institutions that are concerned with digital transactions and cryptocurrencies. These requirements will be enforced in the upcoming year.

The regulations will also apply to companies that produce open-source software and those that produce light wallet software.

UK cryptocurrency regulations: Tracking transactions

The requirements were initially proposed as a decision of her Majesty’s Treasury. The decision aimed to widen the approach of Anti-Monday Laundering and Counter-Terrorism Financing regulations for companies that deal with cryptocurrencies.

This proposal is expected to be approved and enacted into United Kingdom’s Law by Q1 2020.

Coin Center; a research institute for cryptocurrency that is based in the United States, has spoken against the extension of these regulations, exclaiming that such proposals violate the rights of freedom of speech and privacy.

Conclusively, the authorities are striving to have control over cryptocurrency and crypto technology. The newly proposed regulations aim to track user transactions, especially those that are unlawfully performed.

Imposing Restrictions

The proposed extension of UK cryptocurrency regulations aim to impose more control over the crypto space. Previously, the FCA also imposed restrictions on cryptocurrency investors. The authority implied that conventional buyers of cryptocurrencies have inadequate knowledge of the crypto space, which makes them unable to make informed decisions.

Since late June 2019, the cryptocurrency industry is now required to share user data with the Financial Action Task Force (FATF).

UK’s Financial Conduct Authority has not yet provided any explicit information regarding the subject; thus, it is not certain if open-source software code will be exempt from the extended regulations.

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Hodl Hodl Wants You to Clone Its P2P Bitcoin Exchange

Hodl Hodl plans to make its software freely available so anyone can launch their own version of the peer-to-peer bitcoin exchange. Announced …

Hodl Hodl plans to make its software freely available so anyone can launch their own version of the peer-to-peer bitcoin exchange.

Announced Saturday at the Baltic Honeybadger conference in Riga, Latvia, the plan is, in part, a recognition that Hodl Hodl’s business model is vulnerable to regulatory crackdowns.

“History teaches us that if a government wants to shut you down, it will,” Hodl Hodl CEO Max Keidun told CoinDesk.

Open-sourcing the code for its smart contracts, which Hodl Hodl intends to do sometime next year, is a way to deal with the threat, Keidun said, explaining:

“Let’s imagine, our domain gets blocked — some activist would be able to just take the code from Github, fork it and launch something new.”

Already, people in Africa, Asia and Latin America have reached out to the company, asking about such an opportunity, he said. “Peer-to-peer is something emerging markets, in particular, are interested in.”

Rare breed

Hodl Hodl is a rare animal in the 2019 crypto world: as a matter of principle, it focuses on bitcoin (the only cryptocurrency that the company’s founders trust), it doesn’t do know-your-customer (KYC) checks and it has no plan to start.

Why not? “Because we don’t like three-letter abbreviations,” Hodl Hodl’s CTO, Roman Snitko, joked in a slide for his presentation to the Riga conference.

In all seriousness, Hodl Hodl is averse to holding the sensitive personal information that financial institutions are mandated to collect from customers under global anti-money-laundering (AML) regulations.

“We think KYC/AML does more harm by exposing law-abiding users to fraudsters and criminals,” Snitko told CoinDesk. “The information and documents users upload to exchanges has been stolen many times in the past. It also does very little to prevent actual money laundering and criminals from using those services. They always find ways.”

Yet regulators across the globe are tightening the screws on the industry to identify the parties to transactions. Most notably, the Financial Action Task Force (FATF), an intergovernmental body, has directed its member countries to make exchanges collect and store information about who their customers trade with.

Winds of change

Hodl Hodl’s founders believe they don’t have to identify customers because the exchange never takes custody of users’ funds.

Rather, it lists offers to buy or sell bitcoin and provides an escrow service in which the seller locks bitcoin in a multi-signature smart contract until the buyer sends fiat. Releasing the bitcoin requires 2 out of 3 signatures, belonging to the buyer, seller, and Hodl Hodl (which steps in as a referee when there’s a dispute).

“We don’t touch the crypto, don’t match users automatically and don’t keep funds in our wallets,” Keidun said. “We create multisigs in a public blockchain,”

In the same June guidance, the FATF said even peer-to-peer platforms may be subject to such regulations in cases “where the platform facilitates the exchange.” It’s unclear whether Hodl Hodl’s escrow service counts as “facilitating.”

But the founders see the way the wind is blowing.

“We’re not switching to the open-source model exclusively because of the regulatory pressure,” Snitko told CoinDesk. “In fact, we haven’t experienced any due to the fact that we’re a non-custodial exchange. However, we do foresee regulators becoming more desperate in their attempts to contain the spread of bitcoin and we refuse to be the victims of desperate actions.”

Passing the reins

At some point, Keidun and Snitko might hand management of Hodl Hodl to others so they can focus entirely on supporting and upgrading the code. (The exchange says it has no head office; employees work remotely, serving 10,000 users worldwide.)

“We want to create a community around us, so that at some point we could pass the reins to other people,” Keidun said. There is no timeframe for that yet.

In his Riga presentation, Snitko also announced Hodl Hodl’s intention to open “a bitcoin smart contract app store.”

Another way people can utilize the code is payments for e-commerce, and in the coming months, the team will focus on making the technology plug-and-play, so people who are not proficient coders can easily deploy it in their online store and accept bitcoin.

“We want to launch a platform for bitcoin smart contracts, so that anyone who wants to sell homes online or do [over-the-counter] trades could use it,” Keidun said, adding that it might be a multi-sig with more than three signatures and it can be used for multiple use cases.

Aside from bitcoin-to-fiat trades, Hodl Hodl’s multi-sig escrow is used in a peer-to-peer predictions market when people bet on things like the price of bitcoin or publicly traded stock, sports results and other measurable outcomes. A real estate platform is also in the works, with a launch tentatively scheduled for 2020, Keidun said.

Image of Roman Snitkoon the stage of the Baltic Honeybadger conference by Anna Baydakova for CoinDesk

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US Treasury: Non-Compliant Fintechs Won’t Survive the War on Terror

United States Treasury undersecretary Sigal Mandelker stated that cryptocurrencies could become “the next frontier” in the war on terrorism. According …

United States Treasury undersecretary Sigal Mandelker stated that cryptocurrencies could become “the next frontier” in the war on terrorism.

According to a press release published on the U.S. Treasury’s website on Sept. 11, Mandelker made her remarks during the 19th annual international conference on counterterrorism.

Cash is still predominant

While Mandelker admitted that most terrorist organizations still rely on various traditional means of financing such as cash, she also said that she believes crypto could become “the next frontier”:

“Terrorist organizations and their supporters and sympathizers are constantly looking for new ways to raise and transfer funds without detection or tracking by law enforcement. While most terrorist groups still primarily rely on the traditional financial system and cash to transfer funds, without the appropriate strong safeguards cryptocurrencies could become the next frontier.”

Hamas already tried to use Bitcoin

She also noted that in February Palestinian Sunni-Islamist fundamentalist militant organization Hamas asked for Bitcoin (BTC) donations via social media. By March, it is claimed that the two specified addresses received at least $5,000 each. Mandelker added:

“While this may not seem like a lot of money, a FinCEN analysis found remittances linked to terrorism averaged less than $600 per transaction. As we know, the cost of carrying out a terrorist attack can be very low. But the human costs to victims is always extraordinarily high.”

Non-compliant networks won’t survive

According to Mandelker, she recognizes that cryptocurrencies are developments in the field of value transmission that require a “tremendous amount of energy and expertise.” However, she also warned that cryptos may never become compliant if a system capable of preventing illicit finance is not in place, and that now is the moment to put the same technological expertise to work. Mandelker added:

“Absent appropriate safeguards to keep our nations and our communities safe from terrorists, rogue regimes, and others who threaten us, the U.S. will work with governments around the world to make sure that non-compliant networks and fintechs do not survive.”

Congressman is not so sure

The last statement seemingly contradicts the declarations made in July by U.S. congressman Patrick McHenry, who represents North Carolina’s 10th District. McHenry is confident that any attempts to stop Bitcoin are futile:

“The world that Satoshi Nakamoto, author of the Bitcoin whitepaper envisioned, and others are building, is an unstoppable force.”

As Cointelegraph reported earlier this week, Mandelker also recently stated that Facebook’s Libra stablecoin must meet the highest anti-money laundering and terrorism financing standards.

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Stormclouds gather for Facebook’s Libra currency

The Libra Association, a nonprofit organisation based in Geneva, has been formed to oversee the digital currency’s network. France takes aim.
Facebook wants to tap into its two billion Facebook users around the world, which it hopes will use Libra for online shopping, financial services and payments. — AFP picFacebook wants to tap into its two billion Facebook users around the world, which it hopes will use Libra for online shopping, financial services and payments. — AFP pic
Facebook wants to tap into its two billion Facebook users around the world, which it hopes will use Libra for online shopping, financial services and payments. — AFP pic

SAN FRANCISCO, Sept 14 — International outcry is mounting over Facebook’s Libra — with central banks, governments and regulators railing against the social media giant’s upstart cryptocurrency.

Facebook unveiled plans in June for Libra — which will roll out in 2020 — to be backed by a basket of currency assets to avoid the wild swings of Bitcoin and other virtual units.

Facing staunch opposition in Europe, Libra’s boss admitted to AFP late on Thursday that it could yet decide not to operate in the region.

“We do not want to play at being pirates,” said Bertrand Perez, managing director of the Libra Association, on the sidelines of a cryptocurrency event in Paris.

“If the European Central Bank refuses us permission to operate in Europe, then we will not operate there,” Perez said, describing regulatory concerns as “legitimate” but not insurmountable.

The Libra Association, a nonprofit organisation based in Geneva, has been formed to oversee the digital currency’s network.

France takes aim

France has become the latest vocal opponent, warning it would block Libra’s development in Europe because the proposed currency threatens the “monetary sovereignty” of governments.

“I want to be absolutely clear: in these conditions, we cannot authorise the development of Libra on European soil,” French Finance Minister Bruno Le Maire said Thursday.

The Silicon Valley giant wants to tap into its two billion Facebook users around the world, which it hopes will use Libra for online shopping, financial services and payments.

Yet Le Maire fired back: “The monetary sovereignty of countries is at stake” from a “possible privatisation of money … by a sole actor with more than two billion users on the planet.”

A top ECB official recently warned that Libra could harm both the institution and the euro.

“I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call,” said ECB board member Yves Mersch.

Nevertheless, Emilien Bernard-Alzias, a London-based lawyer who specialises in financial markets and cryptomoney, talked down the impact of growing global opposition to Libra.

He told AFP that such “political statements have no real legal meaning” and their “alarmist” arguments were unlikely to stop the birth of Libra — even if the possibility of an outright ban cannot be completely ruled out.

Facebook’s sheer scale means the proposed Libra currency could potentially roil the global financial system and make the job harder for the world’s central banks.

Bloomberg uncovered internal documents last month showing that European Union antitrust regulators are “currently investigating potential anti-competitive behaviour” linked to the Libra project.

But Bernard-Alzias added that there are “many countries in which (Libra) would already be compliant” with national regulations.

And he noted that it could likely be classified as electronic money under existing European Union laws.

Growing unease

European officials, already wary of the US dollar’s dominance in foreign exchange, appear reluctant for a US company to gain such a strong foothold, Bernard-Alzias cautioned.

In response to growing unease, Bank of England governor Mark Carney called for tough worldwide regulation of Libra — and floated the idea of a global cryptocurrency that could be backed by public institutions like central banks.

The US Federal Reserve also sounded the alarm and declared that Libra raises serious concerns regarding privacy, money laundering, consumer protection and financial stability.

President Donald Trump has already slammed virtual currencies for their alleged shadowy nature and argues that Libra has no standing nor dependability — unlike the greenback.

Elsewhere, China has accelerated plans to develop its own yuan-based virtual unit. — AFP

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France vows to block Facebook’s Libra cryptocurrency in Europe

During an OECD conference on cryptocurrencies in Paris, French economy and finance minister Bruno Le Maire sounded the alarm on Facebook’s …
Cutting corners: France has vowed to prevent Facebook’s Libra from operating in the EU, dealing another blow to the company’s ambitious plan for a global digital currency. The concerns are centered on both consumer risk and the potential erosion of the governments’ monetary sovereignty, which has prompted a new initiative for the creation of a European cryptocurrency.

During an OECD conference on cryptocurrencies in Paris, French economy and finance minister Bruno Le Maire sounded the alarm on Facebook’s digital coin and pushed for an EU ban. He believes Libra shouldn’t be allowed to operate in Europe as it poses a big threat to monetary sovereignty and comes from a company who has demonstrated that it doesn’t deserve the public’s trust.

The French minister’s remarks stem from Facebook’s reputation of abusing its dominant position in social media as well as the privacy breaches that have affected millions of users. Interestingly enough, the Libra Association says it welcomes the scrutiny and is prepared to work with European authorities to iron out all the issues found in Libra.

That being said, it faces similar barriers on the other side of the Atlantic, where US authorities in July have asked Facebook to pause its cryptocurrency plans until they can assess its implications. The company and the Libra Association insist that the digital currency will be regulated like other payment service providers, but lawmakers are concerned about security as well as potential risks to global financial stability.

It’s worth noting that while the idea of a global digital currency can lead to a better financial inclusion of those who may not afford to work with banks, there’s no telling what impact even a small disruption in the service may have on all the people that would come to depend on it.

Then comes the question if Facebook has good mechanisms in place to prevent fraud, theft, and money laundering. According to CipherTrace, $4.3 billion were lost at cryptocurrency exchanges in 2019 alone. A leaked UN report says countries like North Korea have managed to steal in excess of $2 billion in digital currencies to fund their military ambitions.

All these concerns have prompted a new initiative for the Euro zone governments and central banks, who are now working on launching a digital currency that would render Libra irrelevant. Reuters says the block is also drafting a set of strict rules for cryptocurrencies, which is going to make Facebook’s life even harder in the region.

During a news conference in Helsinki, European Central Bank board member Benoit Coeure noted that Libra was a “wake-up call.” The ECB didn’t offer a lot of details about the “EuroCoin,” but it did say that it would bypass the need for bank accounts and other financial intermediaries, reducing the costs associated with the processing of digital payments.

In the meantime, some of the early backers of Facebook’s Libra have lost their enthusiasm and are reportedly looking at options to distance themselves from the project. It also doesn’t help that US officials view the members as a sort of “crypto mafia” that only works towards strengthening their businesses. Libra hasn’t even launched yet, and it looks like Facebook will face an uphill battle that is only going to become harder with all the antitrust scrutiny around its business.

Image credit: Facebook Libra and 50 dollar banknotes by Ascannio

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