Shaping Cryptocurrency Gatekeepers with a Regulatory 'Trial and Error'

Abstract

In the past fifteen years, cryptocurrencies have grown from a whitepaper released on a mailing list to an ecosystem supporting millions of transactions a day using a whole host of technology never imagined before. However, governments have been slow to keep up. We present an analysis of regulatory developments from within the EU and by the Financial Action Task Force (FATF). These regulatory responses focus on intermediaries such as cryptocurrency exchanges, and wallet providers. We trace the AML/CFT policy recommendations made by the FATF, and examine the EU’s Fifth Anti-Money Laundering Directive and upcoming Markets in Crypto-Assets (MiCA) regulation. Here we find a natural tension: the pace of regulation is slower than the pace of technology, so the scope is non-comprehensive, yet current trials to accelerate this pace are leading to subtle conflicting errors. These findings present a deeper understanding of the ongoing regulatory dilemma, its essence, and suggest directions for the future of cryptocurrency regulation.

Keywords: cryptocurrency, regulation, FATF, AMLD5, MiCA