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FATF’s updated guidance to Virtual Assets and Virtual Asset Service Providers

30 Dec 2021

On 28 October 2021, FATF published its updated Guidance for a risk based approach for Virtual Assets (VA) and Virtual Asset Service Providers (VASPs) which intends to help both national authorities in understanding and developing regulatory and supervisory responses to VA activities and VASPs, and to help private sector entities seeking to engage in VA activities, in understanding their AML/CFT obligations and how they can effectively comply with these requirements. The Guidance also examines how VA activities and VASPs fall within the scope of the FATF Standards.

The Guidance outlines the need for countries and VASPs, and other entities involved in VA activities, to understand the Money Laundering and Terrorist Financing (ML/TF) risks associated with VA activities and to take appropriate mitigating measures to address those risks. In particular, the Guidance provides examples of risk indicators that should specifically be considered in a VA context, with an emphasis on factors that would further obfuscate transactions or inhibit VASPs’ ability to identify customers.

The Guidance describes the application of the FATF Recommendations to countries and competent authorities; as well as to VASPs and other obliged entities that engage in VA activities, including financial institutions such as banks and securities broker dealers, among others. It further underlines that national authorities are required to take action to identify natural or legal persons that carry out VA activities without the requisite license or registration.

Regarding VASP supervision, the Guidance suggest that only competent authorities, and not self-regulatory bodies, can act as VASP supervisory or monitoring bodies. They should conduct risk-based supervision or monitoring, and have adequate powers, including to conduct inspections, compel the production of information and impose sanctions. There is a specific focus on the importance of international co-operation between supervisors, given the cross-border nature of VASPs’ activities and provision of services.

The Guidance includes updates on the following six key areas:

  1. Clarification of the definitions of virtual assets and VASPs, including decentralised applications such as “DeFi” protocols
  2. Guidance on how the FATF Standards apply to stablecoins
  3. Additional guidance on the risks and the tools available to countries to address the money laundering and terrorist financing risks for peer-to-peer transactions
  4. Updated guidance on the licensing and registration of VASPs
  5. Additional guidance for the public and private sectors on the implementation of the “travel rule”
  6. Principles of information-sharing and co-operation amongst VASP Supervisors

FATF’s publication can be found here.

The updated Guidance can be found here.

Authors

Aki Corsoni Husain Harneys front portrait image on a grey background
Ayana Hull Harneys front portrait image on a grey background
Angelos Lanitis Harneys front portrait image on a grey background
Marc Piano Harneys front portrait image on a grey background