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FATF suggests nations and financial service providers should identify potential risks of cryptocurrencies prior to their launch and take precautionary measures.
According to the global watchdog for financial crimes, the growth of stablecoin digital currencies could soon lead to countries adopting them as legal tender. Following this mass adoption, various risks could arise from the negative use of digital currencies in money laundering and terror financing.
The FATF is the newest authority to address the risks of financial crimes using digital assets. Stablecoin trading companies, along with countries that are looking to adopt them, are encouraged to mitigate risks beforehand.
Stablecoins hold the potential to be used for money laundering owing to “their potential for anonymity, global reach and use to layer illicit funds”, says the FATF. The global financial authority also added that the value of stablecoins has multiplied during the COVID-19 pandemic.
Stablecoins can contribute to a reduction in volatility just like bitcoin, which indicates why they could be used as legal currency in the near future. For this reason, FATF recommends stablecoin traders to analyse risks, monitor suspicious activity, and restrict anonymous transactions.
Moreover, countries are encouraged to implement measures such as verifying the identities of the developers working on decentralised stablecoins as well as traders and financial service providers dealing in stablecoins.
In addition to the FATF, other financial authorities have predicted possible upsets in financial stability if stablecoins become the currency used in tech firms and the telecom industry.
According to the IOSCO group of securities regulators and the Bank for International Settlements, stablecoins should be subject to compliance in the same way as bitcoin and other cryptocurrencies.
Furthermore, the Treasury and Federal Reserve of the US Working Group on Financial Market has also been investing efforts aimed at harnessing cryptocurrency.
Suggested read: The Truth Around DeFi Compliance – Bridging the Transparency Gap