Libraryblog12 Month Review of FATF Standards, Virtual Assets & VASPs

12 Month Review of FATF Standards, Virtual Assets & VASPs

After the FATF completed it's year long review of how it's revised standards have been implemented, we look at what the outcome was, and how Veriff may be able to assist VASPs with meeting those standards.

An eye.
Mario Alfaro
September 24, 2020
Blog Post

The Financial Action Task Force (“FATF”), the global money laundering and terrorist financing watchdog, has completed a 12 month review of the implementation of its revised standards regarding Virtual Assets and Virtual Asset Service Providers (“VASPs”). The FATF has highlighted that further guidance is needed on Virtual Assets and VASPs.

The FATF carried out a 12-month review to measure how the jurisdiction of different countries and the private sector have implemented the revised standards, and also monitor whether there has been any change in the market structure of the Virtual Assets and VASPs sector. 

The review focused mainly on evaluating the three following areas:

  1. Emerging market trends and money laundering risks
  2. The implementation and application of the revised standards in the public sector
  3. The developments in the private sector and the adoption of a Travel Rule compliance mechanism (It requires VASPs to maintain records regarding buyers and sellers of digital assets)

The review emphasizes that the implementation of obligations and regulations corresponding to anti-money laundering and countering the financing of terrorism is in the initial stages at a global level. There are two main difficulties:

  1. The technologies of the business model of virtual assets make it difficult to adapt to the requirements of AML/CTF
  2. Virtual asset service providers have significant challenges when it comes to implementing certain requirements as AML/CTF requirements are unfamiliar in the industry

In its review, the FATF states that the public and private sector have made progress in the implementation of revised FATF standards. 35 out of 54 reporting jurisdictions have implemented the revised standards. 32 of these jurisdictions are regulating VASPs and 3 of them are prohibiting the operation of VASPs. The remaining 19 jurisdictions have not taken any action to implement the revised standards in their legal systems.

The FATF concludes in the review that the following actions should be taken:

  1. All legal systems are called to implement the revised FATF Standards on virtual Assets and VASPs
  2. FATF will carry out a second review by June 2021 and will consider whether updates to the revised standards are needed
  3. FATF will provide guidance to the public and national authorities in regards to the money laundering and terrorism financing involved on virtual assets and VASPs
  4. The international framework for VASP supervisors will be enhanced in order to cooperate and strengthen them.

To get access to the full review, please click here

In June 2019, the FATF made amendments to its global standards to place Virtual Assets and VASPs under the anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) requirements. It required that VASPs must be regulated under the framework of AML and CTF, they should be licensed or registered, and subject to an effective system of monitoring and supervision such as customer due diligence (“CDD”), recordkeeping, suspicious transaction reporting, sanctions and other enforcement measures, along with international cooperation.

Estonia is not a member of FATF, but of MONEYVAL. Estonia had already enacted specific laws regarding the regulation of anti-money laundering and counter-terrorism financing in virtual assets and VASPs. In addition, it is one of the first member states to follow directive number five on anti-money laundering and to include services related to cryptocurrencies as obligated subjects of anti-money laundering laws.

How Veriff can help

Providing identity verification with excellent fraud prevention means Veriff are well-placed to assist VASPs in complying with FATF standards. Ensuring you know who your customers are, and keep consistent records about their accounts and transactions should enable you to maintain stringent AML and CTF procedures, while also allowing you to assist the authorities with any investigations should they arise.

Veriff is incredibly easy to integrate into an existing system, and we provide ongoing guidance and support to our partners once they've introduced Veriff as their verification provider.

About FAFT

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. It’s an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. 

With more than 200 countries and jurisdictions committed to implementing them. The FATF has developed the FATF Recommendations, or FATF Standards, which ensure a co-ordinated global response to prevent organised crime, corruption and terrorism. They help authorities trace criminal funds, related to the dealing of illegal drugs, human trafficking and other crimes. 

The FATF reviews money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of virtual assets, which have spread as cryptocurrencies gain popularity. The FATF monitors countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply.