Over recent years, the crypto ecosystem has grown exponentially. As a result, the virtual asset sector has become one of the most fast-moving and technologically dynamic sectors in the financial world.
Defined as “a digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purposes”, virtual assets (including cryptocurrency and Bitcoin, for example), have provided a powerful new tool for financial criminals to move and store illicit funds.
Against this backdrop, the Financial Action Task Force (FATF) has recently updated its guidance on how governments should regulate virtual assets.
The FATF – the inter-governmental agency that develops anti-money laundering standards and measures, has been closely monitoring new developments in the crypto sphere for many years.
Although their research has revealed the sector’s many benefits (including making payments easier, faster and cheaper), the anonymous nature of these assets poses too great of a risk.
Without proper regulation, the sector will become a virtual safe haven for criminal financial transactions – thus, as the industry hits all-time highs, the need for amended guidance is clear.
This guidance, which is due to be published in November, builds on the guidance that was issued in 2019 and marks the end of a two-year research, review and feedback process.
Although the updates to the guidance concern six main areas, two particularly controversial pieces – the travel rule and the definition of a ‘virtual asset service provider’ – have the potential to transform the industry.
The Travel Rule
Currently, the Travel Rule is a key AML/CTF measure that ensures that originators and beneficiaries of financial transactions are identified through Know Your Customer protocols.
The updated guidance will mean that crypto businesses may be required to satisfy the travel rule in the same manner as traditional financial service providers.
The new guidance also clarifies the definition of ‘virtual assets’ and ‘virtual asset service providers’.
With this, the list of businesses that might fall under AML regulations has been expanded – ultimately meaning that AML obligations will apply to any service relating to virtual assets, not just centralised platforms.
As with other FATF documents, this guidance is not legally binding. It’s on national regulators to decide whether to implement the guidance.
However, once finalised, this new guidance could have significant implications on a broad range of crypto providers – meaning businesses should pay close attention, be prepared for change, and ensure their AML programmes are set up properly.
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Here at One AML, our team of AML crypto and blockchain specialists can help your business ensure AML/CTF compliance.
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