In June 2019, the intergovernmental Financial Action Task Force (FATF) introduced its revised set of standards for virtual asset service providers. The document establishes the anti-money laundering and counter-terrorism (AML/CFT) requirements that regulated VASPs — the term mainly referring to cryptocurrency trading platforms — must eventually implement in their day-to-day operations. The guidelines are framed as recommendations, and the FATF leaves it to the participating nations’ governments to develop their own regulations in accordance with suggested principles.
The watchdog has also set a 12-month review timeframe to monitor the public and private sectors’ progress in putting the revised standards into effect. Following the review period’s expiration in June 2020, the FATF put together a report summarizing a year’s worth of legislative and compliance work. Here is how both the FATF and industry participants evaluate today’s state of international anti-money laundering standardization as it relates to digital assets.
The watchdog’s perspective
The report states that 35 out of 54 surveyed nations have implemented the revised standards on virtual assets in their domestic legislation, while another 19 have yet to do so. The FATF admits that implementation was not always smooth for both the public and private sectors. However, the group maintains that it hasn’t detected any major issues that could warrant amending the requirements.
The organization said it would keep a close eye on digital assets and announced another 12-month review of the revised standards’ implementation.
A particularly enlightening discussion of the FATF decision making happened last week on the Dedicated Online Financial Integrity Network’s (DOLFIN) platform. The webinar featured four former heads of the United States delegation to the FATF, whose accounts offered an informed perspective on how the organization approaches risk management for virtual assets and stablecoins.
Jennifer Fowler, currently a director in Brunswick Group’s Washington, D.C. office who served as the Vice President of the FATF in 2017-2018, said that continuous risk assessment is at the heart of the watchdog group’s approach to digital assets.
One concerning trend that Fowler mentioned is that lately the organization has noticed an uptick in the number of professional money launderers turning to crypto, especially against the backdrop of the coronavirus pandemic. Fowler mentioned that another potential threat that the FATF is closely watching is peer-to-peer transactions, whose growth can render the group’s traditional focus on regulating intermediaries (such as VASPs) obsolete.
Chip Poncy, currently an executive on K2 Fin’s compliance team who led the U.S. delegation to the Financial Action Task Force from 2010 to 2013, talked about the paradigm of open versus closed loops in assessing the risks posed by new financial instruments. An open-loop system is the one that is…