Highlights of FATF's Global Evaluation of Virtual Asset Regulation — March 2024

In February 2023, the Financial Action Task Force (FATF) Plenary observed a significant gap in the implementation of its revised Recommendation 15 in what concerns virtual assets (VAs) and virtual asset service providers (VASPs). Despite the October 2018 revision aimed at integrating and extending measures such as the Travel Rule to VAs and VASPs, numerous countries had not yet implemented these updated requirements.

To address this, the Plenary outlined a roadmap aimed at fortifying the implementation of FATF Standards concerning VAs and VASPs. This roadmap included conducting a comprehensive assessment of implementation levels across the global network. Today, the fruition of this commitment comes to light. 

After a 12-month process of collecting and evaluating relevant information, the FATF published a report on the Status of implementation of Recommendation 15 by FATF Members and Jurisdictions with Materially Important VASP Activity. 

This report features a detailed table evaluating various jurisdictions on key components such as:

• Risk assessment pertaining to VAs and VASPs
• Prohibition of VAs and VASPs
• Enacted legislation mandating VASP registration/licensing and application of AML/CTF controls
• Operational registration/licensing of VASPs
• Supervisory inspections on VASPs
• Enforcement/supervisory actions against VASPs
• Implementation of Travel Rule legislation

The jurisdictions under scrutiny include all FATF members and 20 non-FATF member jurisdictions deemed as hosting materially important VASP activities due to meeting the following criteria:

• Trading volume exceeding 0.25% of global trading and/or
• Having over 1 million users of virtual assets.

The evaluation published today is based on the responses provided by jurisdictions to the FATF's 2023 self-reported survey, which have been updated between January and March 2024. The FATF emphasizes that while informative, this data does not substitute a mutual evaluation or follow-up assessment of countries' compliance with Recommendation 15 as it has not been subject to a detailed analysis as per the FATF methodology. 

Three Key Insights from FATF’s Global Evaluation of Virtual Asset Regulation 

The data shared by the FATF provides three significant insights into how jurisdictions with materially important VASP activity are managing the sector:

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1. There has been an impressive progress on Travel Rule legislation
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Nearly 89% of jurisdictions with materially important VASP activity have either enacted or are in the process of enacting Travel Rule legislation. Only Australia, Iceland, Russia, South Africa, Ukraine, and Vietnam have yet to initiate this process.

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2. More than 90% of jurisdiction implement regulatory measures

Over 90% of jurisdictions with materially important VASP activity have implemented crucial measures to regulate and supervise VAs and VASPs. 91.2% conducted a risk assessment covering VAs and VASPs, while 90.7% enacted legislation mandating VASPs' registration or licensing and compliance with AML/CTF requirements. Similarly, 90.7% conducted supervisory inspections on VASPs.

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3. Only three jurisdictions prohibit virtual assets

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Only three jurisdictions with materially important VASP activity have explicitly prohibited VAs and VASPs: China, Egypt, and Saudi Arabia. 

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Goals of FATF’s Global Evaluation

The publication of this report serves three primary objectives:

• Enable the FATF network to assist jurisdictions with materially important VASP activity in regulating and supervising VASP activity;
• Encourage jurisdictions with materially important VASP activity to promptly implement Recommendation 15;
• Aid regulators and the private sector in discerning the status of Recommendation 15 implementation by jurisdictions with materially important VASP activity.

This last objective is particularly pertinent to Travel Rule compliance, especially in cross-border transactions involving VASPs based in jurisdictions not yet enforcing Travel Rule requirements (the Sunrise Issue).

For instance, in the United Kingdom, the Financial Conduct Authority (FCA) issued a communication on August 17, 2023, outlining more flexible obligations for UK VASPs when transacting with counterparts from jurisdictions without enforced Travel Rule requirements. The operationalization of this FCA guidance hinges on understanding the status of Travel Rule implementation in the counterparty's jurisdiction—a task now greatly facilitated by this new resource published by the FATF.

A Roadmap to Move Forward With

In conclusion, the release of FATF's report on the Status of implementation of Recommendation 15 by FATF Members and Jurisdictions with Materially Important VASP Activity marks a significant milestone: insights into the global landscape of crypto regulations shed light on the progress made and areas requiring further attention.

The findings underscore a collective commitment among jurisdictions with materially important VASP activity to enhance regulatory frameworks and compliance measures. Notably, the majority have taken decisive steps towards implementing Travel Rule requirements and strengthening supervision over VAs and VASPs. 

Moving forward, the objectives outlined in the report serve as a roadmap for continued collaboration and improvement towards a more robust and secure ecosystem for virtual assets.