The global watchdog for money laundering will set up its first rules on oversight of cryptocurrencies by June, a major step towards creating international standards for an asset currently subject to patchy regulations.
The Paris-based Financial Action Task Force (FATF) said on Friday jurisdictions worldwide will be required to license or regulate cryptocurrency exchanges and some firms providing encrypted wallets, to help stamp out the use of digital money for money laundering, terrorism financing or other crimes.
Firms providing financial services for issuances of new cryptocurrencies – initial coin offerings – must also be subject to the rules, it said.
Cryptocurrencies are digital tokens whose creators say they can be used as money without the backing of any country’s central bank.
Until now, their regulation has defied global coordination and led to a patchwork of differing approaches by national governments.
How countries implement the rules will be subject to periodic reviews by the watchdog, said its President Marshall Billingslea. Countries judged to be falling short could be added to a FATF blacklist that restricts access to the global financial system.
“By June, we will issue additional instructions on the standards and how we expect them to be enforced,” he said.
The first and most popular cryptocurrency is bitcoin, which has been followed by hundreds of others.
The price of bitcoin soared 1,300 percent last year to a record of near $20,000 in December but has since plummeted. It was trading at around $6,390 on Friday afternoon.
Extreme price volatility, along with regular thefts from exchanges, has vexed regulators. In the absence of global rules, countries have taken contrasting routes to tame the sector.
Japan last year became the first to regulate cryptocurrency exchanges, while China and South Korea clamped down heavily on them.
In Europe, several countries including France, Switzerland and Malta are looking at early-stage supervision by regulating initial coin offerings.
Lawyers specialising in anti-money laundering welcomed the FATF move, but warned that challenges remain in tracing the true owner of cryptocurrencies.
“You can put any name down for these coin exchanges, and it doesn’t have to be the ultimate beneficial owner,” said Kyle Phillips at law firm Howard Kennedy in London.
This story originally appeared in Reuters. Image courtesy of Shutterstock.