FATF issues new anti-money laundering guidance on virtual assets

By Staff Writer

Global anti-money laundering watchdog the Financial Action Task Force (FATF) last week issued its expanded risk-based guidance on crypto exchanges that some say is tantamount to imposing bank regulations on digital assets.

Highlighting how the anonymous nature of crypto assets makes it susceptible for misuse by criminals, the Paris-based body called upon national authorities around the world to adopt urgent action in terms of putting crypto exchange platforms under the ambit of proper regulations.

National regulators are urged to consider how money-laundering and terrorist financing risks exist in relation to virtual assets, virtual asset financial activities or operations and virtual asset service providers (VASPs).

The Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service, which builds upon the guidance paper issued by the FATF in 2015, comes a week before the G20 leadership summit to be held in Osaka, Japan.

Earlier, global central bankers and finance ministers have vowed to support the anti-money laundering watchdog’s decision to issue harmonized global standards on crypto transactions aimed at fighting illicit and shadowy transactions (see here.)

As per the new guidance, the countries, in view of transparency, are required to ensure that VASPs obtain and hold required and accurate information of the sender and the beneficiary on all virtual asset transfer above $1000 and also make it available on request.

The last rule, some virtual asset industry experts say, is putting bank regulations governing transparency on wire transfers on virtual assets, which they believe is technically impossible to comply in view of the industry’s current modus operandi.

The FATF also urges national jurisdictions to bring the oversight of the VASPs under “competent authority” and not self-regulatory industry bodies. The supervisory bodies should have the powers to monitor the VASPs, conduct inspections and impose sanctions when necessary, it said.

Some VASPs might be providing their services in foreign countries outside their jurisdiction of registration. In such cases, the regulators should be abreast about such activities, although at this stage such exchange of information could be hampered by the fact that many countries do not quite have proper AML/TF framework governing virtual assets, the FATF report said.

The FATF also calls for global co-operation in fighting financial crime in virtual assets mentioning in particular large-scale enforcement actions in the United States.

“The inherently global nature of the digital asset ecosystem makes digital asset activities particularly well suited for carrying out and facilitating crimes that are transnational in nature,” the report said. “Effectively countering criminal activity involving digital assets requires close international partnerships.”

For those countries looking for potential frameworks to study, they could do so, the FATF report said, by looking at some of the jurisdictions that have already rolled out measures aimed at fighting financial crime in virtual asset-based transactions. These include Italy, Finland, Mexico, Norway, Sweden, Japan and the United States.

Following the publication of the detailed guideline, it is now up to individual national jurisdictions to determine how to implement them and what measures they chose to take. While the FATF rules are non-binding, jurisdictions that fail to comply satisfactorily could be subject to sanctions.

The FATF had not turned a blind eye to virtual assets. It issued its first report on virtual assets – then known by its common name, virtual currencies – in June 2014, followed by its guidance in June 2015.

The latest report expands upon the 2015 report by clear recommendations on how national jurisdictions could implement AML/CFT measures on virtual assets, particularly with regards, notably, wire transfers as mentioned above.


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