VASP

Public Consultation on FATF Draft Guidance on a Risk-Based Approach to VAs and VASPs

The Financial Action Task Force (FATF) is updating its Guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs).

The FATF originally published its Guidance in June 2019 after finalizing changes to its Standards to clearly place anti-money laundering and countering the financing of terrorism (AML/CFT) obligations on VAs and VASPs. In July 2020, the FATF committed to update this Guidance as set out in its review report and report to G20 on so-called stablecoins.

This revised document provides updated guidance in six main areas to 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. The Guidance has also been updated to reflect the passage of time and the publication of other relevant FATF reports.

The changes to the FATF’s pre-existing Guidance aim to maintain a level playing field for VASPs, based on the financial services they provide in line with existing standards applicable to financial institutions and other AML/CFT-obliged entities, as well as minimizing the opportunity for regulatory arbitrage between sectors and countries.

This new guideline is raising important points with the intention to broader the scope of application. For instance, in the #56 of the guidance draft, the GAFI propose to enlarge the application to DApp:

“Exchange or transfer services may also occur through so-called decentralized exchanges or platforms. Decentralized or distributed application (DApp) – (…) – A DApp itself (i.e. the software program) is not a VASP under the FATF standards, as the Standards do not apply to underlying software or technology (see below). However, entities involved with the DApp may be VASPs under the FATF definition.”

Despite the fact that the financial intermediaries are subject to an obligation of vigilance, in accordance with the existing laws aimed at combating money laundering and the financing of terrorism, qnd that KYC is respected by all stakeholders, it is insufficient according to GAFI for full compliance. Therefore those new recommendations are meant to go much further than the KYC; it tend to define AML-CFT practices that encourage entity involved to monitor the amount and frequency of financial transfers in order to detect suspicious behavior, such as a KYT – Know Your Transaction – would be able to do.

To check the feasibility of such appliance to the Blockchain industry, the FATF is consulting private sector stakeholders before finalizing the revisions to its Guidance. The FAFT specifically welcome professional views on following area of focus:

1.Ensure that the revised paragraphs 47-79 on the definition of VASP provide more clarity on which businesses are undertaking VASP activities and are subject to the FATF Standards

2. Identify if revised paragraphs 34-35 and 91-93 are the most effective ways to mitigate the money laundering and terrorist financing (ML/TF) risks relating to peer-to-peer transactions (i.e., VA transfers conducted without the use or involvement of a VASP or other obliged entity, such as VA transfers between two unhosted wallets)

3. Make sure that revised paragraphs 152-180 and 256-267 in relation to the travel rule is not lacking any clarity

4. Verify that Boxes 1 and 4 and revised paragraphs 72-73, 122 and 224 provide clear instruction on how FATF Standards apply to so-called stablecoins and related entities

The FAFT is primarily seeking at views from representatives from the VA community, including academics and policy bodies, VASPs, technology developers and providers (particularly in relation to the travel rule), other regulated entities (such as banks), but also views from authorities. The deadline is fixed on April 20 2021

Separate to this process, the FATF is also considering the implementation of the revised FATF Standards on VAs and VASPs, and whether further updates are necessary, through a second 12-month review. Relevant issues identified in this public consultation, which are outside the scope of this project, may be considered through that review. The FATF will consider the report of this review in June 2021. 

VA Guidance update – Sixth draft – Public consultation is available here.

Article: Joana Foglia – Source: FAFT

Post Author: Wealth Monaco