Last week, Christine Lagarde, the President of the European Central Bank (ECB) commented on the need to regulate Bitcoin on a global level last week during a virtual event hosted by Reuters.
Speaking at the Reuters Next conference, Lagarde pointed to the “funny business” affiliated with Bitcoin and its usage for illicit activities – like money laundering.
Recent actions by the Financial Action Task Force (FATF), a global entity that was created to battle money laundering, may accomplish this goal. The so-called “travel rule” seeks to require “virtual asset service providers” or VASPs to maintain exacting records on both buyers and sellers of crypto – somewhat similar to what banks must do now.
Lagarde, who may be considered a crypto bull and an advocate of a central bank digital currency, may simply be aligned with the current government consensus that nefarious activities in crypto are bad. Lagarde pointed to Bitcoin as being a highly speculative asset and not something that will turn into a currency that has been involved in some “totally reprehensible money laundering activity” without citing any specific examples. Lagarde believes that global regulation may start with the G-7 or perhaps something else.
Last month, FATF provided an update on money laundering anti-terror financing. The organization stated:
“As the impact of the COVID-19 pandemic continues, the money laundering risks are likely to become clearer over the coming months. Nevertheless, jurisdictions continue to see some of the vulnerabilities identified earlier in the year by the FATF as a result of the pandemic. Vulnerabilities revolve around changing financial behaviours, in particular a rise in remote transactions, with impacts on financial institutions’ ability to detect anomalies. With increasing unemployment, and larger numbers of citizens conducting transactions remotely, there are also risks that vulnerable citizens will be exploited as money mules. Other vulnerabilities relate to increased financial volatility caused by the global economic downturn triggered by confinement measures to curb the spread of COVID-19. These include increased amounts of cash in circulation, and the use of virtual assets.”
The report cited a specific case study of fraud using virtual assets. According to FATF:
Between late February and early March 2020, an owner of a health-care products trading company in Hong Kong, China saw internet advertisements posted by several purported sellers of surgical masks and medical equipment, including on a major social media platform. When she attempted to purchase the equipment, she was deceived into transferring HKD 450 000 (USD 58 000) to various bank accounts in Hong Kong, China and an Eastern European country and into converting the equivalent of HKD 3.96 million (USD 510 000) into Bitcoin. To do so, the victim withdrew cash from her personal bank account and deposited the cash to a designated Bitcoin ATM where the funds were transferred to designated Bitcoin accounts. In total, three banks located in two jurisdictions (Hong Kong, China, and an Eastern European jurisdiction) were involved. Five transfers ranging from USD 47 250 to USD 235 830 worth of Bitcoins were transferred to accounts owned by the culprit. All of the scammers stopped responding to the victims after receiving the payment. The investigation is ongoing.
Following the comments by Lagarde, Bitpanda CEO Eric Demuth shared the following feedback:
“Lagarde offers good points regarding regulation and its necessity to weed out any “funny business” and illegal proceedings. As Europe’s leading neobroker, on a mission to democratise the complex world of investing, Bitpanda has always been adamant about being in full compliance with legislation and regulatory measures in all the markets that we operate in. Regulation is vitally important for the maturity of a new asset class. If Europe takes an intelligent regulatory approach, it has the chance to become the front-runner for this new technology. This is also a top priority for us and we value what regulation can do to prevent and rid the market of the bad players”
Demuth said they cannot view Bitcoin from the same perspective as fiat currencies:
“Unlike fiat currencies, such as the euro or the US dollar, the value of Bitcoin is not defined by a single entity like a central bank – it is defined by supply and demand, or in simpler terms, by the price people are willing to pay for it. Bitcoin is a store of value, an upgraded version of gold for the digital age. Put simply: Bitcoin has been the best-performing asset of the last decade for a reason. Given how young this asset class is, and therefore how low its market capitalisation is compared to gold, it’s incredible to see how the industry developed. The best asset managers in the US understood the implications of Bitcoin in 2020, as well as how important it is to have this new asset in their portfolio. In all honesty, I firmly believe the ECB should consider putting Bitcoin on their balance sheet and I also truly believe that this is inevitable in the long run.”
Whatever you may think about crypto utilization it is pretty clear that more regulatory oversight is on the way. FATF plans to update guidance on virtual assets later this year. The update expects to define who is a virtual asset service provider and how businesses may implement the travel rule and as well as addressing stablecoins. A 12-month review regarding the implementation of the travel rule should be available by June as well. This should indicate how effectively countries are implementing regulatory controls over crypto.