Top cryptocurrency exchange Binance has partnered with public blockchain protocol Shyft Network as it readies itself to comply with Financial Action Task Force (FATF) regulations.
The Shyft Network was designed to provide a decentralized solution for crypto industry players to fulfill global compliance standards, including the FATF’s “travel rule.”
In a statement shared with Cointelegraph on Feb. 27, Binance’s chief compliance officer Samuel Lin said that, until the creation of the Shyft Network, there was no existing infrastructure by which firms could comply with the new FATF rules.
As part of the FATF’s updated guidance for Virtual Asset Service Providers (VASPs) — issued last summer and set to come into force this June — the controversial travel rule requires VASPs to collect and share Know Your Customer (KYC) information during transactions.
Shyft’s advisor and former FATF executive secretary, Rick McDonell, said that the partnership “should help to move this […] industry to the next level when it comes to effectively interfacing with regulators,” adding that:
"Other exchanges would be well advised to participate in federations that practically address global compliance requirements, particularly the FATF's Travel Rule."
Shyft seeks to encourage crypto businesses to implement an industry-wide solution to the FATF’s requirements by using its identity passporting, database bridging and data attestation infrastructure.
Its open-source technology — designed to comply with both FATF guidelines and the European Union’s GDPR data privacy law — seeks to maintain full use of decentralized networks and to establish secure data-sharing principles applicable across multiple jurisdictions.
The travel rule, and Binance’s KYC incident
Shortly after the travel rule was finalized, FATF Secretariat Tom Neylan told Cointelegraph in an interview that there remained “work to be done by the private sector to develop a technical system that is capable of implementing this rule.” He stressed at the time that:
“We didn’t want FATF to sit down and tell technical details of exactly how companies should comply with it because that would quickly become out of date.”
Binance’s early partnership with Shyft is perhaps particularly significant in light of an incident last summer. In August, the exchange fell victim to a hacking extortion heist that saw the miscreant allegedly gain possession of a huge chunk of the firm’s KYC data (over 10,000 personal photos).
While doubt was cast on the authenticity of the allegedly leaked data, Binance said at the time that the images released thus far could be dated back to a period when the exchange was making use of a third-party service provider to process its KYC verifications.
With some accusing the exchange of attempting to deflect blame, independent crypto author and analyst Sam Town told Cointelegraph he believed that “KYC data should be — and is — currently handled in-house by major exchanges.”