The Banking Executive Magazine - June 2022 Issue

Digital Currency • Establish whether the customer is registered or licensed in a Euro- pean Economic Area member state or in a third country and evaluate the adequacy of that third country’s AML/CTF regime. • Find out whether businesses using Initial Coin Offering ICOs in the form of virtual currencies to raise money are legitimate and, where applicable, regulated. • Where the risk associated with such customers is increased, banks should apply enhanced due dili- gence measures. Regulation in Germany In Germany, new legal rules on vir- tual assets came into force on 1 Jan- uary 2020. Virtual currency companies are now obliged to fulfil Know Your Customer (KYC) require- ments and report suspicious transac- tions to the German financial intelligence unit FIU. Germany seem to be on the right track to prevent the practice of anonymous virtual trans- actions, which pose serious security risks. However, unregulated virtual payment system still exists in Ger- many. Thus, additional regulation is required, particularly for the use of un-hosted wallets. In March 2020, Berlin Risk and the Counter Extremism Project (CEP) published an in-depth study on the exposure of virtual currencies to ter- rorist financing, which encourages German regulators to pay attention to and demand more efforts from vir- tual companies in terms of regulatory compliance and testing emerging in- dustry practices. The study encour- ages both sides to cooperate and find an appropriate way to comply with the new FATF rules. Furthermore, the study encourages authorities to form public-private partnerships to de- velop typologies and indicators for terrorist financing methodologies and potential asset storage opera- tions in the field of virtual transac- tions. TOWARDS A NEW DIGITAL CURRENCIES REGULATORY FRAMEWORK FOR ARAB BANKS While terrorist organisations are not using digital currencies on a signifi- cant scale at the moment. However, the potential for such use exists. Arab banks and policymakers should adapt regulatory frameworks for pre- ISSUE 162 JUNE 2022 the BANKING EXECUTIVE 15