The Banking Executive Magazine - June 2022 Issue

Digital Currency venting digital currencies use in ter- rorism and war. Below are suggested steps towards a new digital currency regulatory framework for Arab Banks: Step #1: Understand the threat Before over-regulating, it is crucial to better understand the threat that dig- ital currencies may or may not pose in terms of terrorist financing. Step #2: Adapt to technology evolution The current evidence shows that the dependence of terrorist organizations on digital currencies is not signifi- cant, and the use of digital currency for terrorist financing is still in its early stages, as it is not a mature method of terrorist financing. How- ever, the development of digital cur- rency technology is unpredictable. Arab banks and authorities need to be vigilant, improve their own digital currency regulatory systems, and prevent various ways of terrorist fi- nancing through multiple channels as digital currency technology evolves. Step # 3: Build Expertise in virtual products and technology Arab countries continue to face the difficult task of keeping up the pace with developments in virtual prod- ucts and technology. Therefore, it is essential to increase the expertise and technical capabilities available to Arab regulatory authorities. Step #4: Understand Risk posed by digital currencies When providing services related to digital currencies, Arab banks should consider the Money Laundering and Terrorism Finance ML/TF risk associ- ated with virtual currencies when: • Operating virtual currency trading platform that exchanges fiat cur- rency and virtual currency • Operating virtual currency trading platform that exchanges virtual currencies • Operating a virtual currency trad- ing platform that allows peer-to- peer transactions • Providing custodian wallet services • Arranging, advising or benefiting from ‘initial coin offerings’ (ICOs) Step #5: Explore Regtech solutions Several regtech solutions are being developed. For example, Facepoint offers a facial recognition-based solution for mitigating the risks of terrorist financing that supports this process as non-face-to-face on- boarding of new clients increases. Chainanalysis, a virtual currency transaction monitoring solution, sup- ports the ML/TF monitoring process over time. Although these tools are essential components of any Anti Money Laundering AML program when dealing with virtual currencies, it is important to understand the so- lutions abilities and limitations in order to apply adequate controls. Step #6: comply with international standards Arab banks and authorities should implement an adaptable regulatory framework that complies with FATF’s international standards on Anti Money Laundering and Counter Ter- rorist Finance AML/CTF. Step #7: Strengthen the effectiveness of monetary policies Central banks in Arab countries should strengthen their monetary policies and improve the attractive- ness of regulated digital currencies. Step #8: Establish an appropriate level of regulation The appropriate level of regulation of virtual assets is crucial within an evolving regulatory framework. Arab banks should find the right mix of ex- pert Customer Due Diligence CDD analysts and investigators as well as technological solutions to comply with new standards and establish ap- propriate know your customer (KYC), Customer Due Diligence CDD and reporting procedures. Step #9: Cooperation at various levels cooperation between regulatory bod- ies law enforcement agencies and the private sector including both tra- ditional financial services industries and digital currencies companies is crucial. Moreover, Arab countries should actively implement proce- dures facilitating international coop- eration to reduce terrorist financing. REFERENCES RAND Research, ACAMSTODAY.ORG, research by Jennifer Hanley-Giersch at CAMS, Global Risk Affairs, The Diplomat, Center for Strategic and International Studies Research by By Pascale Davies New York Times article by By Emily Flitter and David Yaffe-Bellany, CNN, Oxford Press, European Com- mission Regulations. the BANKING EXECUTIVE 16 ISSUE 162 JUNE 2022