Crypto.com, one of the biggest crypto platforms in the world, has recently announced that it will be deploying CipherTrace Traveler to comply with stricter global cryptocurrency Anti-Money Laundering (AML) regulations.
With the announcement, Crypto.com became the first exchange to use CipherTrace’s Traveler, the first commercial Travel Rule Information Sharing Alliance compatible compliance solution.
The move comes soon after the latest guidances by the Financial Action Task Force (FATF), which came into effect in 2020 for all Virtual Asset Service Providers (VASP). The regulations usually referred to as “Travel Rule”, require all VASPs not only to collect customer data when completing transactions but also to share it.
While similar requirements already exist for crypto platforms in the United States, they were received with discontent by privacy advocates and cryptocurrency enthusiasts due to the added complexity it adds to platforms, as well as the ramifications it has on terms of user privacy.
The global nature of the regulations also means that VASPs will have to navigate all of the different transpositions that can arise with local regulations, raising the level of complexity and legal risks associated with operating in different jurisdictions.
New Regulations are Making it Harder for VASPs to Operate
While the regulation was created by FATF with the aim to prevent money laundering in cross-border cryptocurrency transactions, it was not received well by the most important members of the industry.
While solutions like CypherTrace Traveler help VASPs to share sensitive personally identifiable information when completing transactions, while also issuing Know Your VASP (KYV) digital certificates through an encrypted infrastructure.
CipherTrace CEO, Dave Jevans, referred to how the company’s solution will help VASPs navigate the regulations by stating:
“The stakes are high for crypto companies when it comes to meeting compliance standards, with fees and even jail time on the line, and so we are very pleased to announce Crypto.com as the first client using our Traveler product to ensure compliance with global travel rule AML standards.
Traveler enables exchanges to overcome the sunrise issue, meeting their compliance obligations, even with VASPs in jurisdictions that have not yet codified travel rule guidance into local law.”
Antonio Alvarez, Chief Compliance Officer of Crypto.com, also stated that compliance with such regulations is fundamental to the Blockchain and cryptocurrency industries as mass adoption will not be possible otherwise.
The Controversy Around the Travel Rule
The regulation introduced by FATF has been a matter of controversy ever since its inception in 2020 due to the technological challenges it represents for VASPs around the globe. The regulation has also been widely criticized for going against the Ethos of cryptocurrency and decentralization, as well as putting user privacy at risk.
While solutions like CipherTrace Traveler make use of cryptography and other security methods to protect user data, such measures are always susceptible to malicious actors who might be interested in gaining access to private and financial information.
With cryptocurrency and blockchain technology being created with the idea of decentralization in mind, requiring users to share their personal identification via a process like knowing Your Customer (KYC) has been unpopular among crypto users for a long time, with the same attitude being shared towards the new regulations.
Increasing controls and requirements by centralized exchanges like Crypto.com, Binance, and Coinbase, have resulted in privacy-focused users migrating to decentralized exchanges like Uniswap, which offer extra privacy by not requiring the sharing of personal data.
In addition to the privacy and logistical concerns, there have also been concerns around the motivations of the regulations, especially when it comes to how the same rules are being applied to VASPs and traditional banks despite the fundamental difference between them.
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Source: https://blockonomi.com/crypto-com-ciphertrace/
