Amendments to the FATF standards and FATF statement on virtual assets


Published At Nov 5, 2018

This is to inform you about the changes to the FATF standards endorsed by the FATF Plenary in October 2018.

Add the following paragraph at the end of R. 15:

To manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes, and licensed or registered and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations.

Add the following paragraphs to the Glossary definitions:

Terms

Definitions

Virtual Asset

A virtual asset is a digital representation of value that can be digitally traded, or
transferred, and can be used for payment or investment purposes. Virtual assets
do not include digital representations of fiat currencies, securities and other
financial assets that are already covered elsewhere in the
FATF Recommendations.

Virtual Asset
Service Providers

Virtual asset service provider means any natural or legal person who is not
covered elsewhere under the Recommendations, and as a business conducts one
or more of the following activities or operations for or on behalf of another
natural or legal person:

  1. Exchange between virtual assets and fiat currencies;
  2. Exchange between one or more forms of virtual assets;
  3. Transfer63 of virtual assets;
  4. Safekeeping and/or administration of virtual assets or instruments
    enabling control over virtual assets; and
  5. Participation in and provision of financial services related to an issuer’s
    offer and/or sale of a virtual asset.

63 In this context of virtual assets, transfer means to conduct a transaction on behalf of another natural or legal person that moves a virtual asset from one virtual asset address or account to another.

 

The FATF statement on virtual assets (published on the FATF official website following its Plenary meeting of October 19, 2018)

  1. Virtual assets and related financial services have the potential to spur financial innovation and efficiency and improve financial inclusion, but they also create new opportunities for criminals and terrorists to launder their proceeds or finance their illicit activities. The FATF has therefore been actively monitoring risks in this area, and issued guidance on a risk-based approach to virtual currencies in 2015. There is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism.
  2. The FATF Recommendations set out comprehensive requirements for combating money laundering and terrorist financing that apply to all forms of financial activity – including those that make use of virtual assets. However, governments and the private sector have asked for greater clarity about exactly which activities the FATF standards apply to in this context. The Risk-based Approach requires jurisdictions to identify money laundering and terrorist financing risks and take appropriate action to mitigate those risks. This includes identifying and mitigating illicit financing risks associated with new products or business practices, and other activities not explicitly referred to in the FATF Recommendations.
  3. Given the urgent need for an effective global, risk-based response to the AML/CFT risks associated with virtual asset financial activities, the FATF has adopted changes to the FATF Recommendations and Glossary that clarify how the Recommendations apply in the case of financial activities involving virtual assets. These changes add to the Glossary new definitions of "virtual assets" and "virtual asset service providers" – such as exchanges, certain types of wallet providers, and providers of financial services for Initial Coin Offerings (ICOs). These changes make clear that jurisdictions should ensure that virtual asset service providers are subject to AML/CFT regulations, for example conducting customer due diligence including ongoing monitoring, record keeping, and reporting of suspicious transactions. They should be licensed or registered and subject to monitoring to ensure compliance. The FATF will further elaborate on how these requirements should be applied in relation to virtual assets.
  4. All jurisdictions should urgently take legal and practical steps to prevent the misuse of virtual assets. This includes assessing and understanding the risks associated with virtual assets in their jurisdictions, applying risk-based AML/CFT regulations to virtual asset service providers and identifying effective systems to conduct risk-based monitoring or supervision of virtual asset service providers. Some jurisdictions already regulate virtual asset activity in accordance with the 2015 guidance. Today’s clarifications to the FATF Standards are largely compatible with their existing regulatory requirements. The FATF emphasises that jurisdictions have flexibility to decide under which AML/CFT category of regulated activities virtual asset service providers should be regulated, e.g. as financial institutions, DNFBPs, or as another, distinctive category.
  5. The FATF uses the term "virtual asset" to refer to digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes, including digital representations of value that function as a medium of exchange, a unit of account, and/or a store of value. The FATF emphasises that virtual assets are distinct from fiat currency (a.k.a. "real currency," "real money" or "national currency"), which is the money of a country that is designated as its legal tender.
  6. The FATF Recommendations require monitoring or supervision only for the purposes of AML/CFT, and do not imply that virtual asset service providers are (or should be) subject to stability or consumer/investor protection safeguards, nor do they imply any consumer or investor protection safeguards. At this time, virtual asset service providers in most jurisdictions are not regulated for the purposes of financial stability or for investor and consumer protection. Some countries may decide to prohibit virtual assets based on their own assessment of risk.
  7. The FATF Standards permit jurisdictions to prohibit certain activities based on risk and scope in that jurisdiction (e.g. casinos, in jurisdictions where gambling is illegal) and, provided the prohibition is enforced, does not require jurisdictions to have measures to regulate those prohibited activities.
  8. The FATF will provide clarification to jurisdictions in managing the ML and TF risks of virtual assets, while creating a sound AML/CFT regulatory environment in which companies are free to innovate. As part of a staged approach, the FATF will prepare updated guidance on a risk-based approach to regulating virtual asset service providers, including their supervision and monitoring; and guidance for operational and law enforcement authorities on identifying and investigating illicit activity involving virtual assets.
  9. In light of the rapid development of the range of financial functions served by virtual assets, the FATF will also review the scope of activities and operations covered in the amended Recommendations and Glossary in the next 12 months and consider whether further updates are necessary to ensure the FATF Standards stay relevant.