On 15 April, 2020, CoolBitX, a blockchain security company that is building the infrastructure necessary to close the gap between the mainstream market and crypto industry, presented findings of Sygna Bridge’s most recent production report to members of the Financial Action Task Force (FATF) Contact Group — a select group of FATF officers, regulators and industry participants tasked with explaining the FATF’s requirements to the cryptocurrency industry and monitoring how the industry is meeting the various challenges. In a series of tests and cross-border transfers between SBI VC, Bitsonic, and Bitopro — audited by a Big 4 accounting firm — the Sygna Bridge platform demonstrated its effectiveness as a cross-border ‘Travel Rule’ solution.
Of the report, CoolBitX CEO Michael Ou said: “The road to the professionalization of the virtual asset class is a hard one for VASPs everywhere. Among all the AML/CFT recommendations highlighted in the guidance, Recommendation 16 has been one of the most challenging for VASPs to comply with. As such, CoolBitX has been collaborating with global industry working groups and providing our insights to global regulatory consultations as an industry representative. CoolBitX has also committed to adopting the IVMS101 data standards, a joint initiative by the GDF, IDAXA, and the Chamber of Digital Commerce to create a set of common data standards across the industry in an effort to facilitate inter-operability.”
“The CoolBitX team is very proud to offer Sygna Bridge and is thrilled with its performance. While the onus to comply with the FATF’s ‘Travel Rule’ lies on the member VASPs, it is also critical for the user experience not to be adversely affected. The Sygna Bridge production test has demonstrated that it’s possible for VASPs to comply with the ‘Travel Rule’ quickly and with minimal disruption, proving its ability to help VASPs deal with their competing compliance challenges.”
During a transfer of virtual assets, Recommendation 16 requires 1) originator VASPs to obtain and hold required originator and beneficiary information; 2) the originator VASPs to submit such information to beneficiary VASPs “immediately” and “securely,” meaning that VASPs need to submit the required information simultaneously with the transfer itself; and 3) the beneficiary VASPs to obtain and hold required originator and beneficiary information. However, the pseudonymous nature of virtual transactions posed a real challenge for VASPs. Firstly, attaching any personal information to the blockchain or other distributed ledgers raised privacy concerns. Secondly, simply tracing a virtual asset’s wallet address was not sufficient as the wallet address might or might not have been connected to the actual originator or beneficiary. Additionally, VASPs struggled with identifying a time- and cost-effective way to comply to the rule due to the lack of any standardized protocol at the time the guidance was published for such information sharing.
Sygna Bridge Allows for Anonymous, Private and Secure Virtual Asset Transactions
CoolBitX’s Sygna Bridge platform provides an information transfer mechanism for VASPs to exchange the required originator and beneficiary information securely and immediately. The platform is built on an application program interface (“API”), allowing VASPs to be able to integrate and access the platform with ease.
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The Benefits of the Sygna Bridge Platform for VASPs
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Yoshitaka Kitao, President and CEO of SBI Holdings, Inc., says “SBI VC has successfully conducted a proof of concept with actual remittances in April 2020 as part of the process of integrating Sygna Bridge into its platform. From concept inception through to successful production testing, Michael and his team have designed Sygna Bridge with both blockchain industry players and global regulating bodies in mind — allowing VASPs to comply with the FATF’s guidance without sacrificing privacy. We’re proud to continue working with CoolBitX and develop Sygna, simplifying the herculean task of KYC/AML compliance for VASPs and bringing peace of mind for users.”
Sygna Bridge is also designed to give its member VASPs the opportunity to identify any suspicious transactions. For example, if an account connected to the beneficiary is flagged to be a sanctioned person or entity, Sygna Bridge allows the beneficiary VASP to share such information with the originator VASP, thus allowing both member VASPs to prohibit the transaction from occurring. This protects both member VASPs from violating any relevant AML/CFT laws and regulations and allows them to assist regulators to combat illicit ML/FT activities.
“We understand first hand how daunting AML/CFT regulations can feel, especially for crypto businesses that are often cross-border and have users in multiple countries,” says BitSonic CEO Jinwook Shin. “As one of the jurisdictions with more advanced crypto AML laws in place, South Korean exchanges have more clarity than others on what it means to be compliant. With Sygna Bridge, not only does the BitSonic platform have a secure and reliable way to comply with international standards, but we now have the ability to cooperate with South Korean regulations in identifying illicit activity, thereby helping restore crypto’s reputation.”
Global Implementation of FATF Guidance in 2020
Since the FATF provided guidance for virtual assets in June 2019, regulations have started to be issued around the world to ensure compliance of VASPs with the FATF’s Recommendations. Regulatory activities have begun ramping up since late 2019 and continue to do so through 2020 with countries like South Korea and Canada starting to implement Travel Rule requirements within national regulation and many others to follow in the months to come. A few highlights include:
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United States — In FATF’s March 2020 report, U.S. VASPs were deemed “largely compliant” with the Recommendations. In the report, the FATF acknowledged the U.S. regulator’s effort in issuing guidance in 2019 to set forth its regulatory expectations regarding VASPs’ compliance with the ‘Travel Rule’ in the U.S.
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United Kingdom — The UK government recognized the concerns with respect to difficulties in complying with FATF Recommendations, especially with the ‘Travel Rule.’ As a result, HM Treasury has decided not to amend the current AML/CFT regulation at the moment. The intention is to give VASPs more time to develop solutions ahead of the introduction of the new regulatory obligation. The latest information at the UK government’s disposal will be considered in the upcoming third UK National Risk Assessment due to be published in July 2020
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Japan — It is expected that the soon-to-be-published mutual evaluation report for Japan will also focus on compliance of VASPs with the FATF Recommendations. It would be helpful to other countries if the regulators in Japan, a country seen by many as being at the forefront of digital asset adoption, could demonstrate the measures employed to ensure VASPs comply with FATF’s recommendations.
CoolBitX recently announced the successful closure of its US$16.75 million Series B funding round, led by Japan’s financial group SBI Holdings, with participation from the National Development Fund of Taiwan, BitSonic, and Japanese financial group Monex. Having rooted its market dominance in Asia, CoolBitX is expanding the Sygna product line’s presence beyond the APAC region as the first-to-market FATF-compliant solution for virtual asset service providers (VASPs) around the world. More than 13 exchanges have signed Memorandums of Understandings (MOUs) with CoolBitX, joining a consortium of VASPs to begin or consider implementing Sygna Bridge. Currently, the consortium, named the Sygna Alliance, includes SBI VC Trade (JP), Coincheck (JP), Bitbank (JP), DMM Bitcoin (JP), BITpoint (JP), BitSonic (KR), MaiCoin (TW), BitoPro (TW), Ace (TW), ShuBao (TW) and other exchanges throughout the APAC region.
To download a full version of the Sygna Bridge production report, please visit httpw://sygna.io/#download-report-form
