The June 2019 plenary session of the global Financial Action Task Force (FATF) ended with the issuance of a binding interpretive note for international regulation of virtual assets and virtual-asset service providers.
The guidance accompanies revisions to the FATF Recommendation 15: New Technologies, in response to the increasing use of virtual assets for money laundering and terrorist financing. It means that virtual-asset service providers will be subject to the same FATF measures that apply to service providers and financial institutions. The approach provisionally adopted to date in many jurisdictions is called self-regulation and is explicitly ruled out by the guidance.
Countries are now required to identify and regulate in the following ways:
- To license or register virtual-asset service providers.
- To subject virtual-asset service providers to customer identification and due-diligence regulations.
- To appoint official bodies to supervise or monitor virtual-asset service providers.
Under the FATF standards, countries must impose sanctions on virtual-asset service providers that fail to comply with anti-money laundering measures by implementing the full range of preventive measures as recommended by FATF. The list of basic actions are as follows:
- Ensuring sound customer due diligence (CDD) is being carried out.
- Conscientious record-keeping.
- Timely reporting of suspicious transactions.
- Screening all transactions for compliance with targeted financial sanctions.
Going forward, virtual asset service providers will have to identify as basic reporting standards:
- The recipient of those funds they are transferring.
- On whose behalf they are sending funds they are transferring.
- Establish and enclose processes for disclosing that information with both law enforcement agencies and other providers of virtual assets.
The FATF commented in the report that they expect all jurisdictions to take prompt action in order to implement the recommendations in the virtual-asset context “as the threat of criminal misuse of virtual assets is both pressing & serious.” The group pledge to monitor implementation of the new requirements by countries and service providers in a 12-month review, scheduled for June 2020.
Finance ministers and Central Bank Governors at the G20 meeting in Japan welcomed the FATF’s guidance, which they had themselves been demanding last financial year.
US Secretary of the Treasury Mr Steven Mnuchin, who is FATF’s outgoing president, said the new FATF guidelines will make sure that virtual asset service providers will not be able to operate covertly; while using the emerging financial technology sector to stay one step ahead of reprobate regimes and supporters of unlawful causes, which find ways to circumvent normal to raise and transfer funds without detection.
“We will allow for proper crypto-currency usage, however not accept for it to become new method of money laundering;” Mr Mnuchin stated, “we will not tolerate the continued use for illicit activities. We must work together to ensure that virtual assets are no longer a safe haven for illicit actors to circumvent the current system.”