Is FATF's latest Guidance a warning for the Blockchain, Crypto, DeFi, Digital Asset & VASP communities?
For the Blockchain, Crypto, DeFi, FX, Payment, Digital VASP communities FAFT's latest guidance is a helpful reminder that AML, CTF, KYC, TM, Payment Transparency & Travel Rule are applicable!
On Friday 19th March, FATF (Financial Action Task Force) published their much awaited Draft Guidance on a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.
This guidance should be read, understood and assimilated into the strategic plans of firms or anyone working in Cryptocurrencies and Virtual assets space. Even if you don’t think you deal with Virtual assets or are a VASP’s, the FATF paper is highly recommended reading.
Key highlights:
Additional clarification, guidance on compliance on Travel Rule / Wire Transfer Rule. Also see the great work by Intervasp.org on IVMS 101.
Helpful table on ‘Data requirements for ordering and beneficiary VASPs’ and obtaining originator and beneficiary information.
Reminder to VASPs, who have not implemented that the Travel Rules controls that AML/CTF, Recordkeeping, Sanctions and TM requirements are applicable!!
Confirmed that so-called ‘Stablecoins’ are considered to be virtual assets, therefore FATF standards including ML/TF rules and requirements are applicable.
Escrow services, activities supporting crypto, e.g. smart contracts, or firms outsourcing certain activities such as custodian wallets or using digital exchanges should be considered VASPs, or have obligations to comply with requirements!
Promoted need to undertake Periodic Review on counterparty VASPs.
Indicated a need for VASP certificate. Suggested good/best practices for due diligence for undertaking CDD/KYC on counterparty VASPs. Could we see a Wolfsberg Certificate for VASPs!
Suggested options for mitigating Peer-to-Peer transaction and Sunrise risks.
Recognition that VASP guidance covers activities, products and services conducted by innovative technologies firms, non-traditional FI’s, banks, broker-dealers, exchanges houses.
Acknowledged:
Trading in virtual assets including traditional market i.e. dealing or trading in swaps, securities, FX, futures/forwards, commodities or derivatives-related activity.
Role of ‘Trading Platforms’ [See Hong Kong SFC]
Recognised work by key Regulators (e.g. FinCEN, SEC, CFTC) regulating licensed firms and traders, retail foreign exchange dealers or introducing brokers.
Recognition of the:
Global and cross-border nature of VASP, virtual assets, creating the need for joint-up approach to Regulatory supervision.
Impact of Sunrise Issues//Regulatory arbitrage.
Need to clarify Information and Data sharing obligation and best practices.
Showed understanding of the difference types of tokens including non-transferable, non-exchangeable, and non-fungible. And how/which token types might be used to aid fraud, ML or TF.
Reinforced reminder that VASPs should assess and ensure they mitigate the risks associated with trade based money laundering or proliferation financing risks.
SO WHAT - How does this impact me!
This and preceding FAFT guidance, plus recent publications from leading global Regulators in (AUS, CHN, GBR, HKG, EU, SGP, and USA) highlights the ramifications and opportunities for cryptocurrencies beyond the virtual assets sectors. A conservative reading of those combined publications suggests those impacted included firms or persons:
classified or defined as a VASPs
dealing, exchanging or trading virtual assets [including cryptoassets/cryptocurrencies, digital assets],
dealing/advising on virtual assets, in DeFi or DApps,
digital exchange, including dealing with derivatives,
FX and Payments markets (whether or not using regulated, OTC, forwards. futures, swap or retailer products and services)
hosted/unhosted digital wallets,
offering VASP equivalent products or services,
providing primary or secondary escrow or intermediary services, including blockchain or DApps services,
requiring to register as a VASP or obtain a licence from a supervisory authority
running virtual assets trading platforms,
smart contract producing tokens,
subject to Travel Rule (FAFT Recommendation 16)
subject consequences for firms who have not implemented the Travel rule requirements
supporting the blockchain sector,
traditional and non-traditional financial services, including e-commerce firms, trading platforms or e-bazaars which permit transactions in cryptocurrencies and digital assets,
undertaking tracing digital wallets, transaction monitoring or payment services of digital and virtual assets, or AML, CTF/CFT, Sanctions, Cross-border payments, TM or KYC,
wealth & assets management services,
working within certain new and innovative technologies (Recommendation 15)
So if you’re compliant, looking for a review or not sure if these rules and regulations apply email, as the price of compliance always outweighs the costs of enforcement!
info@praxisccs.com
This blog is based on three FAFT publications:
1. “Public consultation on FATF draft guidance on a risk-based approach to virtual assets and virtual asset service providers” and “Areas of focus”.
2. The 6th Draft updated Guidance for a risk-based approach to virtual assets and VASPs.
3. FATF’s original guidance “Virtual Assets and Virtual Asset Service Providers” published June 2019.
https://www.fatf-gafi.org/media/fatf/documents/recommendations/RBA-VA-VASPs.pdf.
All publication were last accessed 21st March 2021 or re-reviewed on 21st March for this blog.
Other sources:
The Securities and Futures Commission (HK SFC). “Do you need a licence or registration?”
https://www.sfc.hk/en/Regulatory-functions/Intermediaries/Licensing/Do-you-need-a-licence-or-registration Last Accessed 21 March 2021
U.S. Department of the Treasury: Press Releases “Financial Action Task Force (FATF) Advances Its Work on Operational Measures to Prosecute Terrorist Financing and Virtual Assets”. February 25, 2021
https://home.treasury.gov/news/press-releases/jy0037 Last Accessed 21 March 2021
David.
Praxis Compliance Consultants.