FATF Focus on Virtual Assets
Blockchain, bitcoin, cryptoassets, virtual currencies, a completely new vocabulary describing innovative technologies that allow value to be transferred quickly around the world. The rapidly advancing blockchain and distributed ledger technologies have the potential to radically change the financial landscape. But their speed, global reach, and above all, anonymity also appeal to those looking to escape government control.
Blockchain emerged a little over 10 years ago. Since then, virtual assets have become widely available and have begun to be used as payment products. However, without regulations and oversight, the sector is still called the “wild west” of the financial industry.
How can criminals abuse virtual assets?
In 2017, the Wannacry ransomware attack held thousands of computer systems hostage until victims paid the hackers a ransom in bitcoin. The cost of the attack went far beyond the ransom payment, and resulted in $ 8 billion in damage to hospitals, banks and businesses around the world. Since then, there have been other ransomware attacks that seem to be on the rise.
FATF focuses on virtual assets
Virtual assets have many potential benefits. They could make payments easier, faster, and cheaper; and to provide alternative methods for those without access to conventional financial products.
But without proper regulation, they risk becoming a virtual haven for the financial transactions of criminals and terrorists. The FATF is closely following the development of the cryptosphere, and in recent years, early countries began to regulate the virtual assets sector, while others have banned virtual assets entirely. However, so far most countries have not taken any action. These gaps in the global regulatory system have created serious loopholes for abuse by criminals and terrorists.
Supported by the G20, the FATF has released global binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing. The term "virtual asset" refers to any digital representation of value that can be digitally sold, transferred, or used for payment. It does not include digital representation of fiat currencies.
The FATF standards ensure that virtual assets are treated fairly with the same safeguards as in the financial sector. FATF rules apply when virtual assets are exchanged for fiat currency, as well as when they are transferred from one virtual asset to another.
- Risk-Based Approach Guide to Virtual Assets and Virtual Asset Service Providers
- FATF Recommendations
While crypto assets do not currently pose a threat to global financial stability, we remain vigilant about risks, including those related to consumer and investor protection, anti-money laundering and anti-terrorist financing.
G20 Finance Ministers and Central Bank Governors Meeting, Fukuoka, Japan, June 9, 2019
Taking Effective Action
Countries need to implement the FATF measures, and soon. This will ensure transparency in virtual asset transactions and keep funds related to crime and terrorism out of the crypto sphere.
Today, many virtual asset service providers are viewed as "risky business" and are denied access to bank accounts and other conventional financial services. While meeting the FATF requirements will be challenging for the sector, it will ultimately increase the credibility of blockchain technology as a reliable and viable medium of value transfer.
The FATF has revised its assessment methodology, which defines how it will determine whether countries have successfully implemented the FATF Recommendations and whether they regulate the virtual asset service provider sector.
- FATF Methodology for Assessing Compliance with the FATF Recommendations and Effectiveness of AML / CFT Systems
Preparing for the future
The technology behind virtual assets is evolving rapidly. Further developments must not create loopholes for terrorists and criminals to exploit.
In June, the FATF released the first global standards to address money laundering and terrorist financing risks associated with virtual assets. The FATF today agreed on how to assess countries' compliance with these new requirements.
Given the global nature of virtual assets, it is important for countries to meet these requirements quickly, in particular by understanding the risks and ensuring effective sector oversight. From now on, the FATF will assess in its mutual assessments how well countries are implementing these measures. Countries that have already undergone a peer review will need to report back on the actions they have taken in this area in the follow-up process.
New assets such as so-called global “stablecoins” and the proposed global networks and platforms for them have the potential to shift the virtual asset ecosystem and have implications for money laundering and terrorist financing risks. There are two problems: the massive adoption of virtual assets and transfers between people without the need for a regulated intermediary. Together, these changes could have serious implications for our ability to detect and prevent money laundering and terrorist financing.
In general terms, both global “stablecoins” and their service providers will be subject to FATF standards either as virtual assets and virtual asset service providers, or traditional financial assets and their service providers. They should never go beyond measures to combat money laundering.
The FATF is actively monitoring new assets, including global stablecoins. He will continue to examine their characteristics and risks and will consider further clarifications on how the FATF standards apply to global stablecoins and their service providers, and whether further updates are needed.
National authorities are responsible for complying with AML / CFT rules in their jurisdictions in accordance with national laws and regulations. The FATF will work to promote the effective global implementation of its standards for virtual assets and other new assets.
The FATF will continue to ensure that its standards remain up to date and flexible and will report to G20 finance ministers and central bank governors in 2020 on the risks associated with global stablecoins and other emerging assets.