Bitcoin and most other digital assets are decentralized. In contrast, a central bank digital currency (CBDC) is issued and regulated by a nation’s central bank and represents a digital version of its currency. For example, the People’s Bank of China (PBOC) offers the digital yuan, which has the same value as the physical renminbi.
The Financial Action Task Force (FATF) has been instrumental in setting global standards for Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT). With the rapid growth of virtual assets (VAs) and virtual asset service providers (VASPs), ensuring these entities comply with stringent AML/CFT requirements has become a priority. In October 2018, FATF updated its Recommendation 15 to include VAs and VASPs, and in June 2019, an Interpretive Note was adopted to further clarify these requirements. This article examines the progress and challenges in implementing these standards across 130 jurisdictions, as highlighted in the FATF's targeted update released in July 2024.
The rise of decentralized finance (DeFi) presents new challenges and opportunities for the application and adaptation of the Bank Secrecy Act (BSA). DeFi’s promise of democratized access to financial services, combined with its inherent complexity, necessitates a reevaluation of existing regulatory frameworks. This is essential to ensure effective oversight without stifling innovation. The key question is: Can anti-money laundering (AML) regulatory regimes adapt to include DeFi, or can the DeFi space adapt to meet regulatory requirements? The answer likely lies somewhere in the middle, often viewed as a compromise.
On June 20, 2024, Merkle Science hosted a three-hour crash course in Crypto Compliance. The full video can be watched on-demand here.
We are excited to announce the addition of FATF-specific rule templates to Compass! These templates are designed to help you stay compliant with the Financial Action Task Force (FATF) guidelines on Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF).
Cryptocurrencies are known for their volatility, with prices experiencing rapid and unpredictable fluctuations. This inherent instability poses a significant barrier to the widespread adoption of digital assets, especially for applications requiring price stability. Stablecoins, a novel class of crypto-assets, offer a potential solution by providing a more stable value proposition. This blog post delves into the inner workings of stablecoins, exploring their core functionalities, and the mechanisms employed to maintain their peg to a designated external reference asset. It also examines the potential risks associated with their use, the regulatory landscape, and the challenges faced by global and regional authorities in governing these digital assets.
Decentralized finance (DeFi) is regulated in the United States, and that should be a fairly uncontroversial statement. While laws, rules, and guidance may lack direct references to crypto industry terms like decentralized finance, they do address the activities these applications carry out. Misconceptions about the regulatory status of DeFi have led to numerous enforcement actions in recent years, highlighting the need for developers and companies to understand and comply with existing regulations. This article explores the regulatory landscape for DeFi, debunks common myths, examines recent legal actions, and emphasizes the importance of legal counsel for ensuring compliance.
In the ever-evolving world of blockchain and crypto assets, one of the latest hot topics is crypto "mixers” (or “tumblers”). Mixers have been the subject of intense debate: Are they heroes of privacy or villains enabling financial crime? Are mixers merely open-source, decentralized code, or are they tools for criminals and bad actors to launder illicit funds? The truth likely lies somewhere in between.
We are thrilled to announce that Debra Brookes, a distinguished former Deputy Virtual Currency Chief at the New York State Department of Financial Services (NYDFS), has joined Merkle Science as an advisor. With her extensive experience in cryptocurrency regulation, financial fraud prevention, and white-collar criminal enforcement, Debra will be an invaluable asset to our mission of creating a safe and thriving cryptocurrency industry.
The interplay between MiCAR (Markets in Crypto-Assets Regulation) and MiFID II (Markets in Financial Instruments Directive II) is crucial for understanding the regulatory treatment of crypto assets and crypto asset services in the European Union. This article examines the roles and interactions of MiCAR and MiFID II, particularly in the classification of crypto-assets and how firms already authorized under MiFID II can leverage their existing authorizations to offer crypto-asset services in the EU. Finally, it provides a concise comparative analysis of MiCAR and MiFID II with other global regulatory frameworks.
