Cryptocurrency intelligence company, CipherTrace and Shyft, developer of a federated identity and blockchain attestation platform, will collaborate on a solution for complying with a tough new recommendation from The Financial Action Task Force (FATF). When adopted by FATF member nations, the new regulation would require exchanges to pass customer information to each other when transferring funds. This is similar to the standard U.S. banks are required to abide by for wire transfers under the Bank Secrecy Act (BSA), which is often referred to as the “Travel Rule.” The joint CipherTrace and Shyft solution aims to enable compliance with the recently announced FATF Travel Rule, while preserving user privacy.
G20 countries endorsed and agreed to implement the Travel Rule for cryptocurrencies, which requires designating known sources and known recipients for transfers greater than $1000 (See comparison of the FATF and the U.S. Travel Rule). Together, the two teams will create a collaborative know-your-customer (KYC) and anti-money laundering (AML) ecosystem in which participating exchanges can securely transfer Proof of Knowledge without disclosing personally identifying information (PII).
Today, exchanges have no compliant way to share KYC information or alert partners when they see suspicious activity. However, with their new pilot program, CipherTrace and Shyft will develop a shared smart-contract and cryptographic access controls between cryptocurrency exchanges that manage access to private details. The goal will be to make KYC and AML faster, more efficient and open, all while maintaining a high level of privacy and only revealing identity information when compelled to do so by legal authorities.
“Our focus is on creating federated standards for identity, which are blockchain agnostic,” said Joseph Weinberg, Shyft’s founder. “We make sure KYC checks can be transferred across networks in a secure manner without compromising identity information. This program bridges a critical gap between new regulatory standards and existing exchange operations to greatly strengthen the crypto ecosystem with a practical implementation of the FATF’s Travel Rule.”
Security and privacy are of utmost concern for exchanges. However, existing AML and KYC practices for many exchanges are lacking, and solutions to on-board customers and prevent money laundering are either too invasive or too relaxed. Now, with the emergence of decentralized exchanges and growth of privacy coins, there is even greater pressure for policymakers to enforce strong compliance.
“With cryptographically controlled privacy mechanisms, it is possible to have both anonymity and responsible disclosure of the source of funds for legitimate purposes such as criminal or terrorist investigations and AML compliance,” said Dave Jevans, CipherTrace CEO. “This is the direction that CipherTrace is working on for the future growth of cryptocurrencies globally. We believe that there are technological and regulatory solutions that can preserve privacy while enabling security and compliance.”