Blockchain faced an uphill battle when its first and most famous iteration, Bitcoin, looked to disrupt the financial services industry – one of the most heavily regulated sectors. Unfortunately, what did not help and perhaps unfairly, was its role in Silk Road, a darknet market that was used for illicit activity. As such, a strong focus from an early stage was on the need for Anti-Money Laundering (AML) measures to be put in place.
Whilst jurisdictions looked to put in measures, global standards have been pushed for by the Financial Action Task Force (FATF), most recently publishing updated guidance this year on taking a risk-based approach towards virtual assets and virtual asset service providers. These guidelines are seen as pivotal to preventing the misuse of cryptoassets, requiring not just the implementation of legislation but also to ensure authorities have the skills, resources and technology to regulate cryptoassets effectively.
In light of the war in Ukraine, there has also been a growing focus on sanctions and the role that cryptoassets play here. Initially, there was a misconception that crypto would be used to evade sanctions placed on Russia. However, putting aside the fact that the size and transparency of the cryptoasset ecosystem made this highly unlikely, it was also clear that the enforcement of existing legislation was sufficient to addressing these concerns. Furthermore, technical solutions developed by industry have also enhanced the ability to detect and identify sanction evaders. Nevertheless, it is an area that will require constant monitoring and therefore it has come into sharp focus.
The strengthening of these requirements has been a clear priority for policy makers and regulators this year as they look to address concerns around the use of crypto and digital assets for illicit activity and going forward this is going to be imperative for the wide-scale adoption of this technology.