Many jurisdictions yet to implement FATF standards on virtual assets and VASPs

Monday, 12 July 2021
Seventy jurisdictions have still not implemented the Financial Action Task Force's (FATF’s) so-called travel rule, under which virtual asset service providers (VASPs) that make cryptocurrency transfers above USD1,000 must pass on the customer details to the recipient financial institution.
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The widespread failure to implement the rule means that global safeguards do not yet exist to prevent the misuse of VASPs for money laundering, says law firm Baker McKenzie.

The rule has long applied to wire transfers of money held as conventional 'fiat' currency. It requires that financial intermediaries executing large electronic payments must attach accurate information on the senders and receivers and is regarded as one of the biggest anti-money laundering (AML) compliance difficulties faced by virtual currency exchanges. FATF extended it to virtual currency transfers in June 2019, along with other recommendations regarding AML measures concerning virtual assets.

FATF has now published a review of progress in adopting the travel rule, noting that most countries have not yet done so. So far, only 58 out of 128 reporting jurisdictions say they have implemented the revised FATF standards regarding virtual assets. Of these, 52 have introduced VASP regulation schemes and a further six have simply prohibited VASPs from operating at all. The other 70 jurisdictions have not yet implemented the revised standards in their national law, including the travel rule.

This is partly because the private sector needs to develop technological solutions to make implementation of the rules possible at all. According to Baker McKenzie's David Zaslowsky, it was apparent from the outset that there would be difficulties in applying regulations that had initially been enacted for traditional finance to the world of cryptocurrency. Without national legislation to enforce it, there is little incentive for financial technology companies to ‘invest in the necessary technology solutions and compliance infrastructure,’ says FATF.

'These gaps in implementation also mean that we do not yet have global safeguards to prevent the misuse of VASPs for money laundering or terrorist financing', commented Zaslowsky. 'The lack of regulation or implementation of regulation in jurisdictions can enable continued misuse of virtual assets through jurisdictional arbitrage. The report highlights the need for all jurisdictions to implement the revised FATF standards, as quickly as possible.'

FATF has said that new guidance on virtual assets and VASPs will be issued by November 2021.


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