It is a globally accepted belief that financial crimes such as money laundering, fraud and the financing of terrorism are societal evils warranting enormous preventative and investigative efforts. Such a belief has been translated into a corpus of guidelines, principles, statutes and implementing regulations around most of planet Earth known as anti-money laundering (AML) and countering the financing of terrorism (CFT) or AML/CFT.
Generally speaking, AML/CFT regulations are intended to deter criminal activity before it happens, and to detect it when it has happened. Because doing this on their own would be an impossibly gargantuan task, governments issue regulations whereby they deputize financial intermediaries as crime fighters on behalf of the public. Each and every financial service provider categorized by law as an “obligated subject” is thus mandated to implement processes, procedures and controls aimed primarily at warding off criminals and, if they manage to penetrate the financial institution, identify them, report them, and ideally stop them in their tracks.
The primary crime deterrent is the obligation to identify customers and beneficial owners, a process known as customer due diligence (CDD) or Know Your Customer (KYC). The Continue reading
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Voluntary transparency is a superior self-regulatory mechanism that could substantially enhance consumer protection and prudential oversight.
On a panel called ‘What Keeps Regulators Up at Night’ held at the Money Transmitter Regulators Association conference in Boston last November, three experienced state examiners from Virginia, Wyoming and Texas laid out in clear terms the key issues they face when vetting money transmitters in their states. Their primary concern: the accuracy and integrity of a license holder’s financial and accounting reports, which are the basis for ascertaining a company’s true financial condition and for ensuring there is sufficient liquidity to meet “transmission obligations.” That’s right, we’re in the second decade of the 21st century, and regulators still rely on after-the-fact, paper-based reporting. Further, regulated financial institutions seem incapable of providing unimpeachable transactional and financial reports to ultimately demonstrate their solvency.
It is a widely known fact that regulation always lags behind technological innovations, Continue reading
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A few months ago, a Latin American advisory group asked me to comment on the Digital Sucre and the potential impact of a country adopting a digital or crypto currency as legal tender. It never occurred to me that I should post the surface-scratching responses I came up with, until American Banker‘s Bailey Reutzel asked the question (here). With the upcoming release of AuroraCoin in Iceland, and the adoption of a bitcoin clone by the Oglala Lakota Native American nation, this seems to be a good time to poke the discussion. So here go my two cents in the hope that a few extra thoughts will be triggered.
In concept, is bitcoin more a currency or a payments system?
Bitcoin is both. In addition, and most importantly and fundamentally, it’s also a protocol on top of which additionally functionality can be built. The fact that Bitcoin (with a capital B) is multiple things at once is what creates most of the confusion about it. Bitcoin is a sophisticated globally distributed asset register that, at this moment in time, is mostly being used to register value in USD or other fiat currencies. Hence the fact that it’s Continue reading