Caribbean cryptocurrency concerns

BitDepth 1532

MARK LYNDERSAY

AT A WEBINAR on October 2, a group of fintech professionals discussed cryptocurrency regulation in the Caribbean, exploring a wide range of concerns, some of them triggered by TT's recent tabling of a bill banning the use of virtual assets.

The Caribbean Digital Finance Alliance (CDFA), which will be formally launched in November by fintech minds from across the archipelago, hosted the event.

Moderator Dennis Augustine from Dominica noted, "Our purpose today is not to analyse a particular bill, but rather to use the broader regional and global experience to explore the fundamental policy question.

"In our Caribbean context, is it the more prudent posture to pause and prohibit virtual assets, or is it to proceed with caution under proportionate and risk-based approaches?"

For TT's Mark Pereira of ZLabs, the issue is foreign exchange (forex) constraints.

"One key point in TT to understand is the managed float introduced in 1993," Pereira said.

"The Central Bank of Trinidad and Tobago allocates US to banks, and the banks distribute the US dollars to the private sector, economy and individuals. The distribution of that currency has not been transparent and in times like this, it generally favours the more fortunate. On the open market, individuals are finding creative ways to purchase US dollars."

One of those ways has been the use of cryptocurrency, which Pereira sees as a way to improve forex accessibility with effective regulation and the use of stablecoins based on US currency.

He believes existing virtual asset providers in TT operating under the FintechTT umbrella are already doing what's required of any financial institution in TT, including required Know Your Customer onboarding and other customer identification checks.

Annie Bertrand, financial inclusion advocate of the CDFA, noted the impact of the Financial Action Task Force (FATF) in the region through its mutual evaluation reviews of each Caribbean country's financial compliance money laundering and terrorism financing regulations, which evaluate existing laws and regulations and their effectiveness.

Non-compliance can reduce investments, increase the cost of capital and threaten correspondent banking relationships.

But the FATF has noted a tendency to over-compliance with its standards, particularly in developing countries, with "unintended consequences."

The FATF requires that virtual asset service providers (VASPs) be licensed or registered with risk assessments and risk-based supervision active.

Since 2021, jurisdictions can prohibit or limit virtual asset activities and 20 per cent of them, 33 nation states, have chosen to do so.

The FATF acknowledges that full prohibition is both difficult and expensive.

Only one of the 33 has met the requirements of Recommendation 15, which outlines regulation and customer due diligence requirements for VASPs.

According to Prof Louis De Koker, an expert on anti-money-laundering law and pragmatic regulatory frameworks, both pausing and banning are problematic.

In a pause with a defined timeline, operators may move outside the jurisdiction or take government to court and hope it drags on (a very real possibility in TT).

Bans require informed and expensive enforcement and policing, making fintech a cost, not an opportunity. Passing a bill is easy, but acting on it is costly, particularly for smaller countries.

Meanwhile, "criminals are gonna criminal." Illegal trading continues using peer-to-peer transfers or unhosted wallets, where most of the movement in criminal money happens today.

Pereira would like to see a TT public-private partnership framework, with the government engaging in strategic regulation and private sector fintech players offering expertise on innovation and changing technologies.

A regulatory sandbox would allow the Central Bank to see if its systems and procedures are properly protected and prepared to manage fintech operations in practice.

"Criminals are our enemy too," he said.

"The Virtual Asset Working Group (would sit with) the Minister of Finance and members of the SEC and FIU to engage on amending the bill. There's maybe two or three simple additions that could allow the sandbox and already existing financial institutions to engage in the regulatory frameworks that they're already adhering to, to move into a sandbox with the other players. The Central Bank gains insight from (industry practitioners) and implements a progressive virtual asset bill."

"(The private sector) knows the market," De Koker explains.

"They speak with their customers; they know about other options. That's a tremendous source of information that can be provided to government that lessens the burden on government and provides it with high-grade information, with the market playing a role in ensuring that the right information is provided to the regulator."

"The crypto market is now around $4 trillion US dollars. It is now part of the mainstream financial system. All countries need to respond to that."

Mark Lyndersay is the editor of technewstt.com. An expanded version of this column can be found there