Contents
- Virtual Assets (Crypto Assets)
- Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers
- Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers
- FATF-Publications
- FATF Virtual Currencies: Key Definitions and Potential AML/CFT Risks
- FATF Virtual Assets: What, When, How?
- FATF UPDATED GUIDANCE FOR A RISK-BASED APPROACH – VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
- FATF TARGETED UPDATE ON IMPLEMENTATION OF THE FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
- FATF 12-MONTH REVIEW OF THE REVISED FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
- FATF SECOND 12-MONTH REVIEW OF THE REVISED FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
- FATF Quick Guide: Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers
- FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing
- FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Financial and Non-Financial Sectors
- FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Public Sector
- FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Virtual Asset Service Providers
Virtual Assets (Crypto Assets)
Virtual assets (crypto assets) refer to any digital representation of value that can be digitally traded, transferred or used for payment. It does not include digital representation of fiat currencies.
Virtual assets have many potential benefits and dangers. They have the scope to make payments easier, faster and cheaper, and provide alternative methods for those without access to regular financial products.
However, they are largely unregulated, and also have the potential to become worthless and are vulnerable to cyberattacks and scams. Without proper regulation, virtual assets also risk becoming a safe haven for the financial transactions of criminals and terrorists.
The FATF has been closely monitoring developments in the cryptosphere and has issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing.
In recent years, some countries have started to regulate the sector, while others have prohibited virtual assets altogether. However, the majority of countries are yet to implement effective regulations. These gaps in the global regulatory system have created significant loopholes that can be exploited by criminals, terrorists and rogue regimes.
Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers
The virtual asset sector is fast-moving and technologically dynamic, which means continued monitoring and engagement between the public and private sectors is necessary.
In October 2021, the FATF updated its 2019 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (VASPs). This updated guidance forms part of the FATF’s ongoing monitoring of the virtual assets and VASP sector.
The FATF standards require countries to assess and mitigate their risks associated with virtual asset financial activities and providers; license or register providers and subject them to supervision or monitoring by competent national authorities. VASPs are subject to the same relevant FATF measures that apply to financial institutions. This guidance will help countries and VASPs understand their anti-money laundering and counter-terrorist financing obligations, and effectively implement the FATF’s requirements as they apply to this sector. The guidance provides relevant examples and potential solutions to implementation obstacles.
The 2021 Guidance includes updates focusing on the following six key areas:
- clarification of the definitions of virtual assets and VASPs,
- guidance on how the FATF Standards apply to stablecoins,
- additional guidance on the risks and the tools available to countries to address the money laundering and terrorist financing risks for peer-to-peer transactions,
- updated guidance on the licensing and registration of VASPs,
- additional guidance for the public and private sectors on the implementation of the “travel rule”, and
- Principles of information-sharing and co-operation amongst VASP Supervisors
Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers
In 2019, FATF extended its anti-money laundering and counter-terrorist financing (AML/CFT) measures to virtual assets (VA) and virtual asset service providers (VASPs) to prevent criminal and terrorist misuse of the sector. Since then, FATF has produced three reviews on implementation of its standards on VAs and VASPs. This report provides an update on country compliance with FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15), including the Travel Rule, and updates on emerging risks and market developments, including on Decentralized Finance (DeFi), Peer-to-Peer transactions (P2P), and Non-Fungible Tokens (NFTs), unhosted wallets, and stablecoins.
FATF’s report finds that jurisdictions continue to struggle with fundamental requirements such as undertaking a risk assessment, enacting legislation to regulate VASPs, and conducting a supervisory inspection. Based on 98 FATF mutual evaluation and follow-up reports since the revised R.15/INR.15 was adopted, 75% of jurisdictions are only partially or not compliant with the FATF’s requirements. In addition, jurisdictions have made insufficient progress on implementing the Travel Rule, which is a key AML/CFT measure. Of the 151 jurisdictions that responded to FATF’s 2023 Survey, more than half still have not taken any steps towards implementing the Travel Rule. This is a serious concern as the risks posed by VAs and VASPs continue to increase and that the lack of regulation creates significant loopholes for criminals to exploit. This demonstrates an urgent need for jurisdictions to accelerate implementation and enforcement of R.15/INR.15 to mitigate criminal and terrorist misuse of VA and VASPs.
FATF’s report acknowledges collaboration among the private sector members to improve industry compliance with R.15/INR.15 including the Travel Rule and highlights that all players need to have appropriate risk identification and mitigation measures and continue to work towards fully compliant Travel Rule compliance tools.
While DeFi and unhosted wallets including P2P do not account for a large share of transactions, they are at risk of misuse, including by sanctioned actors. The FATF will therefore continue to monitor the illicit financing risks and developments in this sector.
The FATF calls on all countries to rapidly implement the FATF’s Standards on VAs and VASPs, including the FATF’s Travel Rule. In February 2023, the FATF adopted a roadmap to improve implementation of R.15. In line with this roadmap and to address the findings of this report, the FATF will:
- Continue to conduct outreach and provide assistance to low-capacity jurisdictions
- Identify and publish steps FATF member jurisdictions and other jurisdictions with materially important VASP activities have taken towards implementing R.15/INR.15
- Facilitate sharing of finding, experiences, and challenges including relating to DeFi, unhosted wallets, and P2P and monitor market trends in this area for material developments that may necessitate further FATF work
- Continue to engage with member countries and the private sector on progress and challenges
- Conduct a further review on progress and remaining challenges for implementation by June 2024
FATF-Publications
FATF Virtual Currencies: Key Definitions and Potential AML/CFT Risks
FATF Virtual Assets: What, When, How?
https://www.fatf-gafi.org/content/dam/fatf-gafi/brochures/FATF-Booklet_VA.pdf
FATF UPDATED GUIDANCE FOR A RISK-BASED APPROACH – VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
FATF TARGETED UPDATE ON IMPLEMENTATION OF THE FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
FATF 12-MONTH REVIEW OF THE REVISED FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
FATF SECOND 12-MONTH REVIEW OF THE REVISED FATF STANDARDS ON VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS
FATF Quick Guide: Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers
https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/Quick-guide-RBA-VA-VASPS.pdf
FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing
FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Financial and Non-Financial Sectors
FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Public Sector
https://www.fatf-gafi.org/content/dam/fatf-gafi/brochures/Handout-Red-Flags-VA-VASP.pdf
FATF Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: Virtual Asset Service Providers
https://www.fatf-gafi.org/content/dam/fatf-gafi/brochures/Handout-Red-Flags-VA-Public-Sector.pdf
Sources:
https://www.fatf-gafi.org/en/topics/virtual-assets.html
https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets-2021.html