Review On Regulating VASPs Set For H1 2024 – AML Watchdog

The Financial Action Task Force (FATF), an inter-governmental body and global Anti-Money Laundering (AML) watchdog, held its plenary from February 22-24, 2023, in Paris, France. The FATF shall present a report on the steps taken by its regional bodies and member countries to regulate and supervise virtual asset service providers in the first half of 2024.

The FATF issues recommendations that set out a comprehensive and consistent framework of measures to combat money laundering and terrorist financing. FATF’s recommendations on new technologies require member countries and financial institutions to manage and mitigate the risks emerging from virtual assets.

FATF recommendations also require that virtual asset service providers are regulated for Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) purposes or are licensed and registered.

The FATF’s guidance on the risk-based approach to Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs)” was adopted in June 2019 and was further updated in October 2021.

The FATF February 2023 plenary noted that many countries had failed to implement its recommendations, including the ‘Travel Rule’. The Travel Rule requires VASPs and financial institutions to obtain, hold and exchange originator and beneficiary information relating to virtual assets transactions.

The plenary also highlighted the progress made in 2022 in facilitating the Travel Rule implementation. The plenary called for the private sector to further strengthen interoperability between existing and other technological solutions available to support compliance.

However, a FATF March 2022 survey revealed that of the 98 jurisdictions that responded, only 29 jurisdictions had passed relevant Travel Rule laws, and only 11 jurisdictions had started enforcement and supervisory measures.

A June 2022 FATF report: “FATF (2022), Targeted Update on Implementation of the FATF Standards on Virtual Assets/VASPs, FATF, Paris, France”, showed that around 33% of responding jurisdictions had not yet started the process of passing relevant legislation. The plenary agreed on a roadmap to accelerate the implementation and enforcement of FATF standards.

The plenary noted challenges in the implementation of the Travel Rule between jurisdictions that regulate VAs and VASPs, and those that did not. Other challenges arose from the different approaches by some jurisdictions in implementing the Travel Rule requirements pertaining to non-hosted wallets, data protection rules, and thresholds for financial transactions.

The Plenary agreed to take stock of the current levels of implementation of FATF Standards across its global network. The plenary also agreed to strengthen the implementation of FATF Standards on virtual assets and virtual asset service providers.