FATF Releases Global Rules for Crypto Assets

28 August 2019

The independent inter-governmental body who deal with the threats made against the global financial system like money laundering and terrorist financing, the FATF, made a big announcement surrounding crypto assets.

At the closing of the Plenary Week Friday in Orlando, Florida, they announced that they had adopted and issued “an Interpretive Note to Recommendation 15 on New Technologies”.

This involves making international amendments relating to crypto assets and how countries must comply with the new regulations.

What does the FATF’s global changes to crypto assets involve?

In the closing speech to the plenary, the U.S. Secretary of the Treasury, Steven T. Mnuchin said: “The Interpretive Note adopted this week includes virtual asset standards that are binding to all countries”.

“Under these new measures, virtual asset service providers will be required to implement the same AML/CFT requirements as traditional financial institutions.”

The obligations will require countries to assess and mitigate any risks associated with virtual asset activities and the entities providing the services. This includes implementing sanctions and other measures when service providers don’t comply with the standard financial AML/CFT obligations.

The FATF also stated that all 37 of its member countries must also “license or register service providers and subject them to supervision or monitoring by competent national authorities”. Interestingly, countries cannot rely on a self-regulatory body to carry out these supervisory actions on its behalf.

However, one of the biggest talking points from the Interpretive Note to Recommendation 15 is the requirements when completing transfers.

Under the new guidance, parties must include:

  • the sender’s name;
  • the sender’s account number from the account that’s used to process the transaction (for example, the VA wallet);
  • the sender’s address, national identity number, customer identification number that identifies the sender to the ordering institution or date and place of birth;
  • the beneficiary’s name;
  • the beneficiary’s account number from the account that’s used to process the transaction.

The FATF said that the “threat of criminal and terrorist misuse of virtual assets” is a “serious and urgent” issue.

With this in mind, they’ve given participating countries 12 months to comply with the guidelines, with a review set for June 2020.

Is there any other alternative?

Naturally, there are some concerns within the blockchain community, who believe putting the FATF’s measures into place within 12 months is harmful to user privacy and counter-productive to law enforcement objectives.

However, the blockchain sleuthing firm CipherTrace is in the process of creating a solution aimed to help crypto firms meet the tough new rules.

They’re teaming up with Shyft – a firm who is developing a blockchain-based identity and attestation platform. Together, they believe that they can enable firms to stay compliant with the FATF “Travel Rule” while maintaining their privacy.

The idea is to build a know-your-customer (KYC) and anti-money laundering (AML) ecosystem, which will allow exchanges to securely transfer Proof of Knowledge without disclosing personal information.

This article was originally published in “Blockchain Compliance Bulletin”, number 8

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