A Guide to Anti-Money Laundering for Crypto Firms
As the largest trading market for cryptocurrency in the world, Asia has also one of its most diverse regulatory environments. Crypto regulations in Asia fall across a spectrum: while many territories have paved the way for the adoption of cryptocurrencies, others have introduced legislation to restrict and even ban them as a reaction to fraud and money laundering risks.
If you’re planning to expand your crypto business, or simply need to get to grips with prevailing AML standards for cryptocurrencies in Asia, understanding your regulatory surroundings should be your first step.
To date, Singapore has taken a permissive regulatory approach to cryptocurrency regulation: although not considered a legal tender, cryptocurrencies can be traded in the city-state and exchanges are legal. The Monetary Authority of Singapore (MAS) does not regulate virtual currencies directly but applies existing legislation to crypto exchanges with a specific focus on their associated risk activities – in particular, money laundering and terrorist financing.
Japan is regarded as having the most liberal cryptocurrency regulations in Asia – if not the world. Under Japan’s Payment Services Act, cryptocurrencies are considered as legal property and cryptocurrency exchanges are legal if registered with the Financial Services Agency (FSA). However, following a series of high profile criminal incidents, money laundering has become a significant concern for Japanese financial authorities and prompted a broad regulatory review by the FSA which was ongoing as of September 2018. In August 2018, the FSA completed a series of crypto exchange inspections, concluding that stronger vetting procedures were required for license applications.
Cryptocurrencies and exchanges are legal in South Korea but operate under some of the strictest crypto laws and regulations in Asia. The South Korean Financial Supervisory Service (FSS) closely monitors the crypto trade with a focus on AML: it has introduced government registration and reporting requirements, banned the use of anonymous trading accounts, and banned Bitcoin Futures trading in local financial institutions.
Hong Kong has a relatively liberal regulatory approach to crypto, permitting the trade and exchange of cryptocurrencies. However, since 2017, Hong Kong’s Securities and Futures Commission (SFC) has turned a closer focus on crypto markets and investments, issuing public warnings about the risks of money laundering and terrorism financing. The SFC has raised the possibility that securities laws may apply to cryptocurrencies and that exchanges may need to be registered in the future.
“As Asia becomes the epicenter of the crypto revolution, exchanges and blockchain firms must work hand in hand with the regulators and policymakers to ensure the longevity of not only their firm but also of the entire industry. At ComplyAdvantage, we’re in a unique position to help the blockchain industry reach mass adoption through compliance.”
– Joon Pak, Global Head of Blockchain, ComplyAdvantage
How To Comply/Tips
- Keep an eye out for Singapore’s government working to further integrate cryptocurrency into the economy. MAS recently invited thousands of crypto entrepreneurs and experts to the Singapore Consensus 2018 conference to discuss the future of cryptocurrency and how it should be regulated.
- Japan is continuing its soft regulatory approach to crypto: in 2018, a government-backed study of cryptocurrency risks led to the development of a preliminary legal framework of investor protections and crypto anti-money laundering measures. Meanwhile, in consultation with the FSA, 16 Japanese crypto exchanges agreed to form a self-regulatory body: the Japanese Virtual Currency Exchange Association.
- The regulatory environment in South Korea may be thawing. In 2018 FSS chief, Yoon Suk-heun, indicated an openness to well-regulated trading, stating that cryptocurrencies must serve the interests of investors while complying with relevant laws. Similarly, South Korea’s Financial Intelligence Unit (KFIU) stated in 2018 that it will treat cryptocurrency exchanges like banks but will specifically target the implementation of anti-money laundering and CFT policies.
- In Hong Kong, a Financial Services and Treasury (FSTB) report released in April 2018 concluded that cryptocurrencies posed only a “medium-low” level risk of being used in money laundering and terrorist financing – but also stressed that regulators and law enforcement agencies were working together to assess the crypto landscape.
- When exchanges look for banking partners across Asia, one of their greatest assets is their ability to demonstrate not only that they have a robust, risk based-approach to compliance, but also that their compliance processes and methodology are more sophisticated than those of the banks themselves.
Need to comply?
Here’s how ComplyAdvantage can help
Need help complying with Asian cryptocurrency regulations? ComplyAdvantage’s data and solutions can help you screen customers and monitor transactions to ensure your business meets and exceeds regulatory expectations.
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Information on the ComplyAdvantage blog site should be used as a guide and never taken as legal advice.
Originally published October 19, 2018, updated November 17, 2021
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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