FINMA, the financial market regulator in Switzerland, has released a guide in line with FATF rules in order to target KYC/AML compliance for blockchain payments companies and cryptocurrencies. Any party that transacts in cryptocurrencies or transmits money over the blockchain is liable to comply with existing money laundering regulation in Switzerland, August 26, 2019.
Blockchains Don’t Circumvent Laws
The Swiss regulator has been open to blockchain and cryptocurrencies, recognizing their value proposition and potential to disrupt digital commerce. However, they also see the opportunity for malicious actors to use cryptocurrency to conduct criminal activities, leading them to issue strict guidance that companies and individuals must adhere to.
FINMA believes that regulation for these payment networks and existing payment platforms must be combined to ensure fairness without creating unilateral rules. From now onward, cryptocurrency and blockchain companies must comply with current regulation from a KYC/AML angle.
A technology-neutral approach may not be the best way to regulate these assets without hindering their ability to some extent, but as a regulatory body, their main aim is to stop criminals and bad actors from blatantly abusing the tech.
Guidelines from the Financial Action Task Force (FATF) have been adopted by Switzerland and could lead to a similar approach to regulation if other countries also integrate FATF guidelines into their domestic regulation process.
Unregulated wallet providers are not given an exception, as this would lead to regulatory arbitrage within a particular jurisdiction.
Nature of Transactions
Transactions to unregulated wallets are allowed so long as payments to external wallets from the regulated institution are being sent to an external wallet that belongs to a customer. The customer will be required to prove their ownership of the wallet through technical means – which more or less means the ability to prove they are in possession of the private keys.
Service providers are required to note the client and the other party for any given transaction. This information need not be stored on the blockchain and is required mainly to appease regulators. Basically, FINMA and FATF are adding another dimension to ‘transparency’ by asking companies for a list of transactions with details regarding the sender and recipient for each transaction.