Key Insights
- •Coinbase is urging the U.S. government to update provisions within the Bank Secrecy Act and digital identification regulations.
- •Company executives have emphasized the connection between contemporary cryptocurrency regulation, national security, and fostering innovation.
- •Fintech organizations are actively defending open banking principles and consumers' rights to access their financial data.
Coinbase Proposes Four Key Crypto Regulation Reforms
Coinbase Global Inc. executives are calling on the U.S. government to update the regulatory framework for cryptocurrencies. In public statements, they have advocated for clearer policies designed to combat financial crime and encourage innovation within the digital asset space. Additionally, they have joined other fintech groups in supporting stronger open banking initiatives and enhanced consumer data rights.
Coinbase Chief Legal Officer Paul Grewal highlighted the rapidly evolving nature of financial crime and the necessity for updated tools to address these challenges effectively. He explained that Coinbase submitted a response to the U.S. Treasury's request for input on detecting illicit activities involving digital assets. Grewal outlined four primary recommendations for improving the existing regulatory system.
Firstly, he proposed the establishment of a "safe harbor" within the Bank Secrecy Act for entities that responsibly utilize artificial intelligence to enhance anti-money laundering efforts. Grewal stressed that regulations should prioritize the application and outcomes of these tools rather than solely focusing on the methodologies employed.
Secondly, he suggested that the government should provide clear guidelines on how companies can leverage APIs to strengthen their compliance programs. These guidelines would aim to define secure methods for using customer data and ensure interoperability between different systems.
His third proposal involves updating customer identification rules to recognize digital verification methods. This includes accepting decentralized IDs and zero-knowledge proofs as valid forms of identity verification, which could facilitate secure transaction confirmations while preserving user privacy.
The fourth recommendation focuses on enhancing transaction screening processes. Grewal advocated for Treasury support of blockchain analysis and Know-Your-Transaction tools, asserting that these methods offer a more comprehensive view of fund movements on the blockchain and can identify risks earlier than traditional systems.
Coinbase Links Regulation to National Security and Innovation
Coinbase's Chief Policy Officer Faryar Shirzad echoed Grewal's sentiments, stating that the company continuously enhances its systems to safeguard customers and national security. Shirzad emphasized that the government should adopt a similar approach by embracing proven digital tools such as AI, APIs, digital identification, and blockchain tracking.
He argued that maintaining outdated systems hinders the ability to combat emerging financial crimes. By integrating new technologies, proponents of crypto regulation could improve compliance effectiveness without impeding innovation. Shirzad further suggested that this strategy would bolster the U.S.'s competitive position in global finance.
Coinbase leaders clarified that their request is not for deregulation but for clearer and more contemporary rules. They believe that a smarter approach to crypto regulation would benefit both the industry and governmental bodies, with a focus on achieving positive outcomes rather than penalizing firms acting in good faith.
Advocacy for Open Banking and Consumer Data Rights
In a related development, several cryptocurrency and fintech organizations are actively lobbying the government to support open banking principles. These groups contend that major financial institutions are attempting to restrict consumers' access to their own financial data.
The Blockchain Association, Crypto Council for Innovation, and Financial Technology Association have jointly sent a letter to the Consumer Financial Protection Bureau (CFPB), urging it to uphold the open banking rule. This rule, approved last year, mandates that banks and credit unions must allow customers to share their data with authorized third parties.
The Bank Policy Institute, representing prominent banks, has filed a lawsuit challenging the rule, citing potential privacy risks. The CFPB has temporarily halted legal proceedings in July to conduct a review of the rule.
The advocacy groups argue that the absence of robust open banking would diminish consumer choice and reduce market competition. They assert that financial data belongs to individuals, not to the banks, and that open banking would align the U.S. with international standards observed in countries like the United Kingdom, Singapore, and European Union member states, where individuals already possess the right to access and share their financial information.
The letter further warns that a lack of strong data-sharing regulations could cause the U.S. to lag in technological innovation and development. The participating organizations concluded that financial progress is contingent upon equitable access to data and the adoption of modern tools.