Thread by @HASHCIB

1/Last week's №1news was not the >10kBTC breakout or #Facebook's #Libra announcement, but release of the #FATF(Financial Action Task Force) Guidance on Virtual Assets(VAs) and Virtual Asset Service Providers(VASPs, anyone professionally dealing with crypto, inc. natural persons)

2/Libra and FATF news represent the "old", centralised world's most powerful-yet attempts at fencing the global crypto phenomenon. One year US Presidency in FATF ending Jun30, effectively helped extend the recent FinCen crypto guidance (bit.ly/2LeQTus) globally

3/And market clearly isn't yet pricing in any of the potential outcomes entailed in this development.We suggest monitoring it in the context of state-by-state implementations, which will end up harmonised - i.e. similar. Here's what we wrote to our Research subscribers in March

4/There's a great counter-argument thread on this by @jchervinsky (bit.ly/2X962Fa), underscoring that FATF issues what is know as "soft law" and states can ignore it. He also notes that it's nothing new compared to US regulations (the most "complex" crypto jurisdiction)

5/Actually, in over 30 years of its existence (especially after 2001) FATF has caused global correspondent banking networks to largely shrink - i.e. "breaking" international banking and providing a perfect pitch-friendly showcase for #bitcoin. Well, not anymore, says FATF

6/Contraction of correspondent banking networks is the reason why you have @BitPesa facilitating FX trades between bordering African states, as their banks can't maintain correspondent accounts with a global currency bank.
Which they had, before FATF made it costly or impossible

7/The 38-member organisation effectively covers the whole world on anti-money laundering (AML) and counter-terrorist financing (CFT), as member states (world's largest economies) won't let their financial institutions deal with FIs in states with no similar regulations in place

8/Updated recommendations(which set standards) will take time to implement,but are inevitable - the key point here
For the most part, Guidance focuses on including Virtual Assets(VAs) and VA businesses(VASPs) into established scope of AML/CFT regulation standards(recommendations)

9/So what is being proposed?
VAs and VASPs are defined by FATF and Interpretative Note to Recommendation 15 of original FATF standards (covering new tech) is updated to include VAs and VASPs into the scope of other 39 FATF AML/CFT recommendations - together making up 40 standards

10/Here are some examples of how VAs and VASPs are included into the already well-established FATF standards by the Guidance, covers all 40 of them in relation to VAs and VASPs. Nothing new, just a new asset

Note: CDD - customer due diligence
Full doc:bit.ly/2IDGN4G

11/However, there are some specific details, sometimes confusing - as FATF wants to leave members some room for interpretation.
VAs definition seemingly leaves out stablecoins and security tokens - as both are regulated as fiat and securities, respectively (by"older" FATF rules)

12/Yet this is uncertain, as FATF leaves room for interpretation (as illustrated in previous screenshots to the tweet). But it is important, as VA transactions have a pretty low threshold for being reported - USD/EUR1000 or even lower, if assessed as risky

13/VASPs will have to collect and immediately attach info on tx originator and beneficiary and pass it to the next VASP tx is sent to

They will need to:
a.develop an inter-VASP messaging system separate/on top of b-chain
b. map b-chain addresses for other VASPs and their clients

14/VASPs potentially include:
a.exchanges
b.custodian wallet providers or
c.ICO/IEO issuers/platforms
d.crypto tx processors (inc.ATMs)
e.but also dApps (inc.its devs if operating it or keepers)
f.staking services
g.escrow services
-
both legal and natural persons

15/VASPs could be either centralised or decentralised - the latter, in the view of FATF, does not release them from burden of compliance. DApp inclusion here seems to dwell on the criteria of "facilitating or conducting exchange or transfer of value". It also applies to dApp devs

16/VASPs should be licensed or registered, potentially in multiple jurisdictions-where they conduct business. States should designate specific authorities to supervise the VASPs, self-regulated bodies are not recommended. Even countries prohibiting crypto should cooperate.

17/FATF urges members to implement local regulations - check point is in 12 months (source:bit.ly/2LcCorf)
Those will probably take much longer and offshore crypto havens will persist for years-yet the future market structure implications of the Guidance are significant

18/Implications on the likes of @BitMEXdotcom, which just had $8.7bn vol. on XBTUSD this Sat (!),are less of a concern - they will eventually comply. Yet this could hinder the global adoption of #DeFi and other dApp products as well as affect fungibility of #BTC and other #crypto

19/Again, these standards take time to implement, but are inevitable.

This means innovators focusing on catering to "unbanked" or privacy-focused pockets of society will face a pushback. Users get stopped by hurdles..
@ercwl sees it differently, though:bit.ly/2X0SUwz