Back to blog
By:
loadingSCORECHAIN
Date: April 15th 2021
Published on: Regulation
Tags:
Crypto AML, Crypto Regulation, FATF, stablecoins, Thailand, UK,
Regulators are concerned about satablecoins as they can represent ML/TF (money laundering and terrorism financing) risks. The recent increase in usage of stablecoins reinforced these concerns. According to the market data provider CryptoQuant, stablecoins held on exchanges rose to an all-time high on March 28, 2021, at more than $10 billion1. At the beginning of the year, stablecoins held on exchanges already reached an all-time high surpassing $4.8 billion2. This amount doubled in just a few months.
A stablecoin is a type of digital asset that is backed by another asset with the goal of stabilizing its price. A stablecoin can be backed for example:
One advantage of these stablecoins is that owners don’t need to rely on an intermediary to exchange their coins, just like cryptocurrencies. On the other hand, one of the drawbacks is that the value of the stablecoin is tied to the value of another asset and will fluctuate accordingly.
Stablecoin is a hot topic for regulators as more and more jurisdictions are planning to issue rules to regulate stablecoins lately.
For example, in January 2021, the UK issued a consultation paper “UK regulatory approach to cryptoassets and stablecoins: Consultation and call for evidence”3 asking for feedback from the industry’s stakeholders. The UK was seeking feedback on:
The comment period for this consultation ended on March 21, 2021. In late March, UK’s financial services minister, John Glen also said the country will focus on regulating stablecoins before intervening in the broader cryptocurrency market, as reported by Reuters4.
Thailand’s Central Bank is also planning to issue a regulation on stablecoins this year5. In mid-March, the Central Bank states in a press release6 that Thai Bhat backed-stablecoins which are a means of exchange are e-money and fall under Payment Systems Act 2017. For other stablecoins, the Bank of Thailand states that it is open to comments before considering stablecoin related regulation. This press release on stablecoins follows a warning from the Central Bank about an unregulated stablecoin backed to the Thai Baht7 and from which stems an increased risk in ML and cyber theft.
Besides, the FATF also plans to bring stablecoins into the scope of its guidelines. In March 2021, the Financial Action Task Force (FATF) proposed a draft updated guidance on Virtual Asset Service Providers (VASPs). The proposal aims at giving guidance on how to apply FATF’s standards to stablecoins. In this draft guidance, the FATF addresses issues related to stablecoins. The guidance states that:
Stabecoins can also be risky and represent a threat to investors. In June 2020, the FATF released the FATF’s Report to the G20 Finance Ministers and Central Bank Governors on So-called Stablecoins8. This report identifies the particular money laundering (ML) and terrorism financing (TF) risks that can stem from stablecoins:
Besides, in the draft guidance mentioned above, the FATF also gives examples of steps that can help to mitigate ML/TF risks associated with stablecoins such as:
Scorechain Blockchain Analytics Platform covers stablecoins and provides compliance teams with useful tools to deal with ML/TF risks related to stablecoins such as:
Scoring for USD Coin on Scorechain Blockchain Analytics platform
As more and more governments are looking to implement rules for stablecoins, crypto businesses need to have in place processes to mitigate ML/TF risks related to stablecoins. Want to know more about how you can use Scorechain to monitor stablecoins? Contact us for a free demo: contact@scorechain.com
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a European leader in crypto compliance since 2015, the Luxembourgish company serves worldwide customers in 33 different countries with more than 150 licenses established, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software can de-anonymize the Blockchain data and connect with sanction lists to provide a risk scoring on digital assets transactions, addresses and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.