The FATF (FATF) is an inter-governmental body with 38 members that sets standards and promotes the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and threats to the integrity of the international financial system. On February 22, 2019, the FATF released a Public Statement – Mitigating Risks from Virtual Assets that sets forth detailed requirements for the regulation, supervision and monitoring of Virtual Asset Service Providers (VASPs). The FATF has been working on an “Interpretive Note to Recommendation 15” due to a belief that there is urgency for countries to take coordinated action to prevent the use of virtual assets for crime and terrorism.
FATF Current Recommendation 15 addresses new technologies
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Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices, including new delivery mechanisms, and (b) the use of new or developing technologies for both new and pre-existing products. In the case of financial institutions, such a risk assessment should take place prior to the launch of the new products, business practices or the use of new or developing technologies. They should take appropriate measures to manage and mitigate those risks.
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To manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes, licensed or registered and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations.
FATF “Draft Interpretive Note” to Recommendation 15
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Countries should consider virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”. Countries should apply the relevant measures under the FATF Recommendations to virtual assets and VASPs.
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Countries should identify, assess, and understand the money laundering and terrorist financing risks emerging from virtual asset activities and the activities or operations of VASPs and apply a risk-based approach to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. Countries should require VASPs to identify, assess, and take effective action to mitigate their money laundering and terrorist financing risks.
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VASPs should be required to be licensed or registered. At a minimum, VASPs should be required to be licensed or registered in the jurisdiction(s) where they are created. If the VASP is a natural person, they should be required to be licensed or registered in the jurisdiction where their place of business is located. Jurisdictions may also require VASPs that offer products and/or services to customers in, or conduct operations from, their jurisdiction to be licensed or registered in this jurisdiction. Competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding, or being the beneficial owner of, a significant or controlling interest, or holding a management function in, a VASP. Countries should take action to identify natural or legal persons that carry out VASP activities without the requisite license or registration and apply appropriate sanctions.
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A country need not impose a separate licensing or registration system with respect to natural or legal persons already licensed or registered as financial institutions within that country, which, under such license or registration, are permitted to perform VASP activities and which are already subject to the full range of applicable obligations under the FATF Recommendations.
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Countries should ensure that VASPs are subject to adequate regulation and supervision or monitoring for AML/CFT and are effectively implementing the relevant FATF Recommendations, to mitigate money laundering and terrorist financing risks emerging from virtual assets.
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VASPs should be subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements. VASPs should be supervised or monitored by a competent authority which should conduct risk-based supervision or monitoring. Regulators should have adequate authority to supervise or monitor and ensure compliance by VASPs with requirements to combat money laundering and terrorist financing including the authority to conduct inspections, compel the production of information, and impose sanctions. Regulators should have authority to impose a range of disciplinary and financial sanctions, including the power to withdraw, restrict or suspend the VASP’s license or registration.
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Countries should ensure that there is a range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with VASPs that fail to comply with AML/CFT requirements. Sanctions should be applicable to VASPs and to their directors and senior management.
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Countries should implement preventive measures such as:
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occasional transactions designated threshold above which VASPs are required to conduct CDD is USD/EUR 1 000.
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Countries should ensure that originating VASPs obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts and make it available on request to appropriate authorities.
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Countries should ensure that beneficiary VASPs obtain and hold required originator information and required and accurate beneficiary information on virtual asset transfers and make it available on request to appropriate authorities.
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monitoring of the availability of information and taking freezing action and prohibiting transactions with designated persons and entities.
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Countries should provide the widest possible range of international cooperation in relation to money laundering, predicate offences, and terrorist financing relating to virtual assets and supervisors of VASPs should exchange information promptly and constructively with their foreign counterparts, regardless of the supervisors’ nature or status and differences in the nomenclature or status of VASPs.
Don’t be a Victim of your Own Making
The FATF wants jurisdictions to urgently take legal and practical steps to prevent the misuse of virtual assets. Their message is that virtual assets can create opportunities for criminals and terrorists to launder proceeds or finance illicit activities. VASPs ought to be able to implement a risk-based approach to ensure that measures to prevent or mitigate money laundering and terrorist financing.
