TL;DR
- Coinbase has urged the U.S. Treasury to reform AML rules, arguing that the 1970 framework is outdated and exposes private information.
- The corporate proposed creating regulatory testing zones to guage AI and blockchain-based compliance instruments.
- It additionally recommended recognizing decentralized identities and zero-knowledge proofs as legitimate verification strategies.
Coinbase has known as on the U.S. Division of the Treasury to perform a complete reform of anti–cash laundering rules, arguing that the present framework, created over fifty years in the past, not suits the realities of right this moment’s digital monetary system. The corporate stated the present guidelines are ineffective, expose private information, and overwhelm regulators with low-value experiences with out bettering the detection of economic crimes.
In its 30-page response to the Treasury’s public request for enter on “Modern Strategies to Detect Illicit Exercise Involving Digital Property,” Coinbase argued that know-how ought to type the inspiration of a brand new regulatory method. The corporate’s Chief Authorized Officer, Paul Grewal, said that when criminals innovate, establishments should do the identical—and regulation can’t stay anchored to legal guidelines written in 1970, such because the Financial institution Secrecy Act.
What Is Coinbase Proposing?
The corporate proposed the creation of regulatory testing zones—or protected harbors—the place companies might develop compliance instruments primarily based on synthetic intelligence and automatic analytics. Based on the doc, this mannequin would permit regulators to consider the effectiveness of recent techniques with out exposing firms to penalties for technical noncompliance throughout the experimental section.
Coinbase additionally recommended that decentralized identities (DIDs) and zero-knowledge proofs (ZKPs) be acknowledged as legitimate mechanisms for verifying consumer id. In its view, these applied sciences would improve privateness with out weakening anti–cash laundering controls, decreasing the necessity to gather and retailer huge quantities of non-public info.
One other pillar of its proposal is the adoption of the “Know Your Transaction” (KYT) mannequin, which depends on blockchain analytics. Coinbase stated this method allows extra exact monitoring of illicit monetary flows than the normal strategies used for financial institution accounts.
The corporate additionally known as for stronger public–personal cooperation by regulatory sandboxes, the place establishments might take a look at new compliance fashions earlier than formal implementation. Success, it argued, needs to be measured by the precise discount in monetary crime, not by the variety of experiences generated.
Debate in Congress
Congress is presently debating a regulatory framework for decentralized finance. Some lawmakers are pushing for tighter oversight of the DeFi financial system, whereas trade leaders warn that extreme regulation might stifle innovation. Coinbase is positioning itself as a center floor, advocating for a stability between compliance and technological progress
