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The emergence of new technologies and products over the last decade has been one of the major changes to the global financial system. Their positive impact on the economic and social sphere is undeniable. However, they can also create new opportunities for criminals and terrorists to launder their proceeds or finance their illicit activities. In order to respond to the constant use of new methods by criminals, the inter-governmental body Financial Action Task Force (FATF) in 2019 finalized amendments to its global standards to clearly place AML and CFT requirements on virtual assets and virtual asset service providers (VAPs) by revising Recommendation 15 (R.15) and adding a new Interpretive Note and agreed to undertake a 12-month review to measure the implementation of the revised standards by jurisdictions. On 5 July 2021 FATF completed and published its second 12-month review of the implementation of its revised Standards on virtual assets and virtual asset service providers, the follow-up to June 2020’s first review.
“Far from Sufficient” Implementation
Even though the second review recognized the clear progress in the implementation of the revised standards by public and private sector, it also pointed out that the implementation was still far from sufficient as there are still many jurisdictions that have not adopted the necessary measures. It must be stated that as regards the VASPs, under the revised standards, jurisdictions may either permit and regulate them or ban them. The report states that only 58 jurisdictions out of 128 have adopted relevant legislation to implement the revised FATF standards, issued in 2019. 26 jurisdictions were in the process of introducing relevant legislation, 12 jurisdictions had decided their approach to VASPs but were not yet in the process of introducing relevant legislation and 32 jurisdictions had yet to decide what approach to take to VASPs.
P2P transactions
The report also includes the first market metrics on peer-to-peer (P2P) transactions of virtual assets (a virtual asset transaction that does not involve a VASP or other AML/CFT-obliged entity), based on input from seven blockchain analytic firms (Chainalysis, CipherTrace, Coinfirm, Elliptic, Merkle Science, Scorechain and TRM Labs). According to the report the illicit transactions appears higher for P2P compared with transactions with VASPs at least in terms of direct transactions. There was substantial amount of variation in the data provided by the different blockchain analytic companies resulting in the FATF being unable to assess with certainty the size of the P2P sector and its associated ML/TF risk.
Delay in Travel Rule implementation
The Travel Rule (or the “Crypto Travel Rule), which is officially accepted by FATF on 21 June 2019, requires that VASPs disclose clients and beneficiary user information on domestic and cross-border transactions. The requested information covers both the sender’s and recipient’s name, geographical address and account details. The FATF has indicated that there has not yet been sufficient advancement in the global implementation of the travel rule and this may lead to continued misuse of virtual assets through jurisdictional arbitrage. Therefore, the FATF underlined the importance of the immediate implementation of the rule by all jurisdictions.
Further actions to be taken by FATF
The report underlined the need to promote the immediate and effective implementation of the revised FATF Standards by all jurisdictions. According to the report, FATF should undertake the following actions:
Focus on the effective implementation of the current FATF Standards on virtual assets and VASPs across the Global Network;
accelerate implementation of the travel rule by the private sector as a priority;
monitor the virtual asset and VASP sector for any material changes or developments that necessitate further revision or clarification of the FATF Standards considering the fast-changing business and technological environment of virtual assets, including through its revised Guidance project
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