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Book part

Syed Fadhil Hanafi and Syed A Rahman

Regulation of digital currency is still at its infancy as authorities around the world grapple with its mechanics, and study its impact and the best method to regulate it…

Abstract

Regulation of digital currency is still at its infancy as authorities around the world grapple with its mechanics, and study its impact and the best method to regulate it. Significant increase in the use of digital cryptocurrency based on Blockchain technology post-Bitcoin phenomenon had challenged the conventional idea of central bank monopoly in currency issuance. This had also raised concern that digital currency being used as an instrumentality of crime given its anonymity feature that allows for the flow of funds without tracing and the fact that it is built on trustless system that provides security of transaction. This concern, plus other consideration including the prospect of issuing central bank digital currency, had driven some authorities around the world to adopt countermeasures either via an outright ban or a regulatory regime that suits the nature of digital currency, which is purely virtual and anonymous. However, in coming out with an appropriate legal regime, authorities faced multiple difficulties especially when the pace of legal development does not sync congruently with the rapid progress of technology. In addition, given the growing prominence of Islamic finance around the world, questions also arise pertaining to the legality of digital cryptocurrency from the Islamic perspective. Through a qualitative study of relevant literatures as well as legislations in different countries, this chapter discusses the various categories of digital currency, its position from the Islamic perspective, regulatory regimes of digital cryptocurrency in selected jurisdictions and challenges faced by authorities around the world in regulating this new medium of exchange.

Details

Emerging Issues in Islamic Finance Law and Practice in Malaysia
Type: Book
ISBN: 978-1-78973-546-8

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Article

Doron Goldbarsht

The purpose of this paper is to explore the various characteristics of frequent-flier programs and the threats they pose to the Australian anti-money laundering regime.

Abstract

Purpose

The purpose of this paper is to explore the various characteristics of frequent-flier programs and the threats they pose to the Australian anti-money laundering regime.

Design/methodology/approach

A thorough literature review was conducted on frequent-flier programs and the associated money-laundering threats. Money laundering (ML) risks were identified in relation to the three stages of ML and effective law enforcement.

Findings

The findings indicate that as ML continues to gravitate towards the weaknesses in the financial system, frequent-flier programs provide yet another avenue for criminals to exploit. The risk factors associated with frequent-flier programs – specifically, anonymity, elusiveness, the rapidity of transactions occurring in a digital environment, ambiguity regarding responsibility for compliance, the global network of participants and members, difficulty in accessing records and an overall lack of oversight – were all integral considerations in establishing the ML risks of such programs.

Practical implications

The global environment in which individuals conduct financial transactions continues to evolve rapidly, exacerbating ML risks for regulators and governments alike. Unless there are globally unified efforts to heighten awareness, the threats posed by virtual currency will increase at a rapid rate. With this in mind, the starting point of this paper is an attempt to analyse the ML risks pursuant to frequent-flier programs in Australia.

Originality/value

The findings from this study can be used to gain greater insights into frequent-flier programs and can have broader application for evaluating other similarly structured loyalty programs, both in Australia and globally. Additionally, the findings from the study can enhance overall awareness of the ever-increasing threat to global financial integrity through the expansion of virtual currency.

Details

Journal of Money Laundering Control, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1368-5201

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Article

Mohammed Sawkat Hossain

The authors make a fundamental initial effort to conduct a systematic review analysis on “cryptocurrency,” mainly to analyze the way it has been changing the “stereotype”…

Abstract

Purpose

The authors make a fundamental initial effort to conduct a systematic review analysis on “cryptocurrency,” mainly to analyze the way it has been changing the “stereotype” financial transactions, and also identify the probable unexplored research avenues on this innovative investment regime. The study aims to draw the landscape of the current state, prospects, challenges, trends and possible agendas of cryptocurrency in the global market.

Design/methodology/approach

Using a quali-quantitative approach widely known as meta-literature review, the synthesis analysis on “cryptocurrency” is conducted. Methodologically, the authors review and analyze the most recent and relevant papers preferably published between 2016 and 2020 in leading business and finance journals of ISI Web of Science (ISI WOS) through bibliometric analysis particularly coupled with content analysis.

Findings

The findings of the meta-analysis summarize the relevant stylized facts of the cryptocurrency market: distinctive features of blockchain technology, decentralized payment method, low-cost facility, ensuring pseudo-anonymity, independence from central authority, double spending attack protection, organic and instantaneous nature, among others. In addition, the analysis identified several future research regimes: pricing model, prospect of investment regime, hedging properties, volatility dynamics, information asymmetry, underlying risk factors and bubble-like nature in global cryptocurrency market.

Practical implications

This academic novelty significantly contributes to enhance our knowledge on the current state-of-the-art of digital finance, outlines the research agenda and eventually provides important investment implications for financial managers, research analysts, investors, market practitioners, regulatory compliance professionals and policymakers. Therefore, the findings shed the lights on new investment opportunity in the global market.

Originality/value

Cryptocurrency, virtual currency or digital asset having cryptography for idiosyncratic security features, seems to be a persistent paradigm shift in the digitalized financial system. Despite the continuing growth, the academic research on cryptocurrency is still at nascent stage, particularly because researchers did not deeply draw attention at this financial innovation. In addition, the authors argue that none of the earlier studies yet conducted a meta-analysis on this latest investment regime. Therefore, this review study is the initial attempt to fill up the gap in the finance literature.

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China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

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Article

Umut Uyar and Ibrahim Korkmaz Kahraman

This study aims to compare investors of major conventional currencies and Bitcoin (BTC) investors by using the value at risk (VaR) method common risk measure.

Abstract

Purpose

This study aims to compare investors of major conventional currencies and Bitcoin (BTC) investors by using the value at risk (VaR) method common risk measure.

Design/methodology/approach

The paper used a risk analysis named as VaR. The analysis has various computations that Historical Simulation and Monte Carlo Simulation methods were used for this paper.

Findings

Findings of the analysis are assessed in two different aspects of singular currency risk and portfolios built. First, BTC is found to be significantly risky with respect to the major currencies; and it is six times riskier than the singular most risky currency. Second, in terms of inclusion of BTC into a portfolio, which equally weights all currencies, it elevates overall portfolio risk by 98 per cent.

Practical implications

In spite of the remarkable risk level, it could be considered that investors are desirous of making an investment on BTC could mitigate their overall exposed risk relatively by building a portfolio.

Originality/value

The paper questions the risk level of Bitcoin, which is a digital currency. BTC, a matter of debate in the contemporary period, is seen as a digital currency free from control or supervision of a regulatory board. With the comparison of major currencies and BTC shows that how could be risky of a financial instrument without regulations. However, there is some advice for investors who would like to invest digital currencies despite the risk level in this study.

Details

Journal of Money Laundering Control, vol. 22 no. 1
Type: Research Article
ISSN: 1368-5201

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Article

Mohammed Ahmad Naheem

The purpose of this paper is to consider the recent (Dec`15) introduction of the Bitlicensing rules in New York and consider from a banking perspective how this will…

Abstract

Purpose

The purpose of this paper is to consider the recent (Dec`15) introduction of the Bitlicensing rules in New York and consider from a banking perspective how this will impact on their own risk assessment processes. The paper also outlines the challenges of applying financial regulation to companies that have an area of expertise and business that is more aligned to software development, rather than financial service provision.

Design/methodology/approach

This paper is a viewpoint paper, which offers a critical discussion on the FATF guidelines on virtual currencies. The paper compares developments that are currently occurring within the virtual currency sector in particularly the new Bitlicensing process in New York State and discusses the implications to the banking sector on risk assessment processes for virtual currency transactions.

Findings

This paper will benefit the banking and regulation industries as well as economic and banking academics and anyone with an interest in virtual and digital currency technology.

Originality/value

This paper is unique in that it examines the issue of virtual currency regulation from a banking perspective. It explains the virtual currency technology as a means to be enhancing banking risk assessment, for clients seeking to incorporate virtual currency transactions into their business. This paper impacts on the banking and regulatory sectors because it critically examines the current practice of over regulation and the impact that this has on alternative financial systems, such as digital and virtual currencies. The paper offers a theoretical framework as well as citing current practical reports of how regulation has already started to affect the financial services landscape. The impact of getting this wrong can lead to increased criminal activity, and this paper highlights how susceptible the financial sector is to this.

Details

Journal of Financial Crime, vol. 25 no. 2
Type: Research Article
ISSN: 1359-0790

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Expert briefing

Central bank digital currencies.

Details

DOI: 10.1108/OXAN-DB252048

ISSN: 2633-304X

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Book part

Mohd Yazid bin Zul Kepli and Sonny Zulhuda

This chapter attempts to clarify and describe the legal and regulatory framework for cryptocurrency with special focus on Malaysia and the threats that it poses from the…

Abstract

This chapter attempts to clarify and describe the legal and regulatory framework for cryptocurrency with special focus on Malaysia and the threats that it poses from the anti-money laundering perspective. Currently, very few countries have legislations that regulate cryptocurrency. Nonetheless, the crazy surge in prices (to more than 20-folds at some point) has sent both legitimate investors and criminals flocking to cryptocurrencies. This chapter analyses and compares the official reports from various governments, writings of government officials, experts and scholars in journals and newspapers, interviews and draws conclusions on the legal framework of cryptocurrency, and money laundering challenges. The study notes that the decision of the US regulators in allowing Bitcoin futures to trade on major exchanges to be one of the reasons behind the sudden surge. The study also finds that the South Korean regulators’ approach in banning its financial institutions from dealing with virtual currency is a positive one. The chapter stresses that it is not adequate for regulators to warn the public to act with extreme caution and increase their understanding on the risks they take on if they choose to invest in cryptocurrencies. Instead, it is necessary to have comprehensive international and national laws and regulations for the control and management of cryptocurrencies. In addition, the anti-money laundering legal framework must be improved to cater to the new threats posed by cryptocurrency.

Details

Emerging Issues in Islamic Finance Law and Practice in Malaysia
Type: Book
ISBN: 978-1-78973-546-8

Keywords

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Expert briefing

Fed Chair Jerome Powell is lukewarm on digital currencies but the multiple impacts of COVID-19, and the progress of China and other states on CBDCs, have reignited calls…

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Article

Mohammed Ahmad Naheem

This paper aims to explore the implications of the 2014 Financial Action Task Force (FATF) publication and guidelines on virtual currency definitions and the overall…

Abstract

Purpose

This paper aims to explore the implications of the 2014 Financial Action Task Force (FATF) publication and guidelines on virtual currency definitions and the overall impact of blockchain technology on anti-money laundering (AML) compliance and regulation. The report cites three case study examples, which the FATF paper uses and which this paper questions as to their relevance, especially to the formal banking sector.

Design/methodology/approach

The paper has provided a critical analysis of a FATF publication and guideline document. Additional secondary data has been used on blockchain technology and to analyse the relevance and implications of the case studies used in the FATF document.

Findings

The main findings are that virtual currency technology has the potential to support AML frameworks within banking when and if they are better understood. However, generic case examples of virtual currency legal cases are not necessarily useful when developing AML risk assessment frameworks within the banking sector.

Practical implications

The implications from the research affect any financial organisation undertaking AML risk analysis or compliance especially for virtual currencies. It applies to the banking, insurance and auditing professions and is of interest to academics working on virtual and digital currencies.

Social implications

The social implications are that virtual currency technology can be used to add protection to banking transactions and could also be considered for client identity information such as beneficial ownership.

Originality/value

The originality of this paper is the topic of blockchain technology being considered in AML frameworks and the critical analysis of the FATF cases.

Details

Journal of Money Laundering Control, vol. 22 no. 3
Type: Research Article
ISSN: 1368-5201

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Book part

Higinio Mora, Francisco A. Pujol López, Julio César Mendoza Tello and Mario R. Morales

Virtual currency is a digital representation of value that is neither issued by a central bank or a public authority. Its reliability is based on advanced cryptographic…

Abstract

Virtual currency is a digital representation of value that is neither issued by a central bank or a public authority. Its reliability is based on advanced cryptographic methods which provide privacy and confidence to citizens. Virtual currency and its underlying technologies such as blockchain or smart contracts trigger transformation in many areas of the society’s functioning. The way in which social relations occur and economic transactions are managed are changing forever. As a result, cryptocurrencies constitute a good example of how specific technology may lead to substantial transformation of the world. Still, virtual currencies could benefit from the versatility of collaborative communication of social media and Internet to promote and develop new commerce and business initiatives as well as new forms of financial flow managements. The objective of this chapter is to examine the role played by virtual currencies in modern societies in order to describe potential uses and applications and their impact on politics and social behavior. As a result, recommendations are inferred to address the challenges and opportunities of these new technologies.

Details

Politics and Technology in the Post-Truth Era
Type: Book
ISBN: 978-1-78756-984-3

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