One of the big three credit rating agencies Fitch Ratings, warns that Bitcoin’s expansion in El Salvador could bring many operational and financial risks for banks as we are reading more in our latest Bitcoin news today.
Fitch said that Bitcoin as a legal tender could increase the regulatory, financial and operational risks and. Fitch ratings cautioned that El Salvador’s decision to make BTC legal tender will put banks at risk of money laundering, tax evasion and terrorist financing. The president Nayib Bukele announced a week ago that BTC will become a legal tender but the World Bank, the IMF and other authorities criticized the move. The World Bank refused a new request from El Salvador to assist in the country’s implementation of BTC as a legal tender.
In a blog post, Fitch warned that BTC could violate international AML and terrorist financing standards and could lead to tax evasion. The link between organized crime and BTC is a major concern for the regulators as Bukele denied links to MS-13 and Barrio 18 which are the two biggest drug dealing cartels in Central America. However, critics said that he worked with gangs to assist his political career. One of the government partners in the plans is Chicago-based Zap Solutions whose Strike wallet is already being used in El Salvador.
We reported that Zap lacks licenses to operate in the US which makes it illegal for Salvadoran emigrants to send cash and make crypto transfers from unlicensed states to el Salvador using Strike which could cloud up, even more, the controversial BTC plans. Fitch did say that El Salvador is yet to publish regulatory guidance about crypto and there’s a timeframe in which the legal framework will be created and payment systems introduced. Bukele even introdced a new state-sponsored wallet Chivo and said that everyone that will signs up will receive $30 in free BTC.
If El Salvador doesn’t comply with the FATF standards, the banks in the country could be more detailed due diligence and check on the financial institutions. Rushing through the BTC payment system will impact the currency and liqudity risk as well as present ransomware attacks. The critics argued that the new law obliges people to start accepting crypto and in response to the concerns, Bukele said that using BTC will not be mandatory.
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