The Financial Action Task Force (FATF) just held a meeting at Paypal's headquarters in San Jose to discuss trends and developments in Fintech and Regtech. FATF is an inter-governmental body whose objectives include setting standards and promoting implementation for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system - they're a global policy-maker, in short.
FATF announced that at its meeting, the participants agreed on a set of guiding principles (which are called the "San Jose principles") to assist both the public and the private sectors in promoting engagement on criminal issues (such as detection of suspicious activities, potential illegal activity and criminal network) and to help balance the need to support innovation while managing potential money laundering and terrorist financing risks.
This is of particular interest, given that one of the topics that I'm most frequently asked about in relation to blockchain and bitcoin is around criminal activity and whether using a blockchain could lead to an increase in money-laundering. The other question is a broader Fintech question on regulators' approach to regulation.
The other point to note is that this is very much in line with the UK FCA's recent focus on Regtech, including comments made in relation to customer due diligence and anti money-laundering (see, for example, this speech by Chris Woolard on Regulating Innovation, which states that "We are particularly interested in exploring whether block chain technology can help firms meet know your customer or anti-money laundering requirements more efficiently and effectively. We are engaged in discussions with government and industry on this issue."). Anti money-laundering and "know your customer" requirements are also identified as potential opportunities for Regtech by the Australian Securities and Investment Commission.
The San Jose Principles are as follows (edited slightly, just so the acronyms are a bit easier to follow):
- Fight terrorism financing (TF) and money laundering (ML) as a common goal. Combatting ML deals a significant blow to the many profit-driven criminal activities, while countering terrorism financing limits the capabilities of terrorist groups to prepare or carry out attacks. As stakeholders, we have a shared interest to prevent the misuse of the financial system from the threats of ML and TF, thereby strengthening financial sector integrity and contributing to safety and security. Only by working together may governments and the private sector effectively achieve these goals.
- Encourage public and private sector engagement. Close engagement between governments, the private sector and academia on financial innovations helps to foster a shared understanding of these developments, identify pertinent issues, and facilitates collaboration to address any concerns as they arise.
- Pursue positive and responsible innovation. Be on the lookout for innovations that present opportunities to mitigate risks, increase the effectiveness of anti-money laundering and countering the financing of terrorism (AML/CFT) measures, and benefit society in general.
- Set clear regulatory expectations and smart regulation which address risks as well as allow for innovation. Better understanding of how existing AML/CFT obligations apply to new technologies, products, services, and new paradigms for the provision of financial services is best achieved by governments and the private sector working together to increase awareness and establish clear guidelines as needed.
- Fair and consistent regulation. Aim for a regulatory environment that is commercially neutral, respects the level playing-field and minimises regulatory inconsistency both domestically and internationally.