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FATF publishes finalised Guidance for a Risk-Based Approach for Virtual Assets and Providers

Yesterday, on 28 October 2021,  the Financial Action Task Force (“FATF”) published its finalised, updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers (the “Guidance”), applicable to firms that handle cryptocurrency and virtual assets.  This updated Guidance forms part of the FATF’s ongoing monitoring of the virtual assets sector and is intended by the FATF to assist national authorities in interpreting and developing regulatory and supervisory responses to virtual activities and Virtual Asset Service Providers (“VASPs”), and to aid private entities seeking to participate in virtual activities in understanding the anti-money laundering and counter-terrorist financing (“AML/CTF”) requirements applicable to them. 

The updated Guidance provides clarity in six key areas identified from the FATF’s second 12 month Review of the Revised FATF Standards on Virtual Assets and VASPs, carried out in June 2020, which required greater clarity from the FATF in order to clarify the application of the revised FATF Standards. The updated Guidance also reflects input from a public consultation which took place in March and April 2021. 

A short brief of the Guidance, published by the FATF, provides a summary of the six key areas of focus in the updated Guidance, which include:

  • Clarification of the definitions of both ‘virtual assets’ and ‘VASP’ to emphasise that these definitions should be interpreted broadly.
  • Providing guidance on how the FATF Standards apply to ‘stablecoins’ and clarification that a range of entities involved in stablecoin arrangements could qualify as VASPs under the FATF Standards.
  • Providing  further guidance on the risks and tools available to countries to address the AML/CFT risks for  peer-to-peer (“P2P”) transactions.
  • Providing updated guidance on the licensing and registration of VASPs.
  • Providing guidance on the Principles of Information-Sharing and Co-operation among VASP Supervisors.

    Issuing further guidance for the public and private sectors on implementation of the "travel rule" by including a definition of transaction fees and how the travel rule applies to certain transactions where there are automatic refunds.

    In the updated Guidance, the FATF has highlighted the need for national authorities and VASPs to be aware of and appreciate the AML/CFT risks associated with the virtual asset sector and to take appropriate steps to address and mitigate those risks. Specifically, the updated Guidance provides examples of risk indicators that should  be considered in a virtual asset context, with an emphasis on factors that would further obscure certain transactions and inhibit a VASP’s ability to identify its customers.

    The FATF has noted that it shall continue to be  ‘vigilant and closely monitor the virtual asset and VASPs sector for any material changes that necessitate further revision or clarification of the FATF Standards’, including in relation to areas covered in the updated Guidance published yesterday.