On March 19, 2021, the Financial Action Task Force (FATF), the global anti-money laundering standards-setting body, released draft guidance to clarify and supplement its 2019 guidance on a Risk-Based-Approach (RBA) to Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs). While FATF’s guidance is not technically binding on member countries, it is broadly followed by such jurisdictions, in part to avoid inclusion on FATF’s lists of jurisdictions with deficiencies in their anti-money laundering (AML) and countering the financing of terrorism (CFT) regimes. For example, FATF’s recommendation that the so-called “travel rule” be applied to VASPs is being widely implemented by jurisdictions around the globe, although the pace of such implementation varies considerably. Therefore, the draft guidance, which incorporates a number of substantial changes and additions, may have a significant impact on industry going forward.
As described in a FATF press release, there are six main areas of focus for the draft guidance:
- “clarify the definitions of VA and VASP to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as a traditional financial asset);
- provide guidance on how the FATF Standards apply to so-called stablecoins;
- provide additional guidance on the risks and potential risk mitigants for peer-to-peer transactions;
- provide updated guidance on the licensing and registration of VASPs;
- provide additional guidance for the public and private sectors on the implementation of the ‘travel rule;’ and
- include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.”
Of particular note are the implications for decentralized exchanges (DEXs) and decentralized applications (DApps), peer-to-peer (P2P) transactions, and implementation of the travel rule.