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Regulatory Frameworks for Virtual Assets: A Progress Review by FATF

Alice Nawfal
Alice Nawfal
July 20, 2020
Alice Nawfal, with a rich background in blockchain, public policy, and consulting, leverages her extensive experience in business operations and analytics to drive Notabene's growth and operational efficiency.

In June 2019, the Financial Action Task Force (FATF) released a global regulatory framework for the crypto industry. One year later, on July 7th 2020, FATF released a report containing a 12-month review and assessment that measures implementation of these guidelines by jurisdictions and the private sector.

To read a summary of the report, check our blog post: “Time is running out to implement the travel rule, says FATF in its 12-month review”.

In this review, FATF found that there has been substantial progress made by jurisdictions in implementing the revised FATF standards. It is important to note that these assessments are based on members’ self-assessment and not any official FATF assessment. It also found that the private sector has made progress in working on the travel rule, but will need to focus on implementation and interoperability going forward.

Marked progress by jurisdictions 

35 out of 54 reporting jurisdictions have now implemented the revised FATF standards. Of these, 3 jurisdictions have prohibited VASP operations altogether. Meanwhile, 19 jurisdictions have not yet implemented a regime, and wide variation exists in terms of progress. 2 out of the 19 plan to prohibit VASP operations, and 4 are still undecided. The below chart outlines the state of implementation across jurisdictions.

Among the 32 jurisdictions who decided to regulate VASPs, it is noteworthy to point out that implementations vary across:

  • A majority introduced new legislation for virtual assets. However, a smaller number of jurisdictions decided to extend current existing AML/CFT guidance to cover VASPs. 
  • No common terminology exists for virtual assets and VASPs among these jurisdictions, with at least 11 different terms reported for VASPs. 
  • 18 jurisdictions have introduced registration requirements, and 12 have introduced licensing regimes. These requirements generally apply to VASPs who are incorporated in their countries, but also apply in many cases to VASPs selling products/services in their jurisdictions even if incorporated overseas (18 VASPs) or VASPs operating from their jurisdiction (20 VASPs). So far, 20 jurisdictions have reported a total of 1,133 registered or licensed VASPs.
  • 15 jurisdictions have started conducting on- and/or off-site inspections of VASPs and 8 reported that they have already imposed sanctions on VASPs for noncompliance with existing guidelines. 

These emerging complex and non-uniform regulatory landscapes present challenges for VASPs looking to be regulated. 

Increased readiness by the private sector for Travel Rule compliance

The FATF acknowledges progress by the private sector in developing comprehensive technological solutions for the Travel Rule, but notes that none is yet widely adopted. This has delayed the introduction of travel rule guidance by jurisdictions, with only 15 jurisdictions having implemented the travel rule. However, FATF believes that jurisdictions should not wait any longer to fully implement AML/CFT obligations for VASPs, including the travel rule, and calls on the industry to “redouble its efforts towards the swift development of holistic technological solutions encompassing all aspects of the travel rule”.

FATF is technology-neutral, and is supportive of industry efforts to develop technical standards like messaging standards that allow interoperability among the different solutions.

What happens next?

Going forward, FATF expects all of its members and its broader global network of FATF-Style Regional Bodies (FSRBs) to have fully implemented these guidelines by June 2021. It also expects the virtual asset industry to be compliant with the travel rule. FATF will be releasing additional guidance by October 2020 to shed light on any issues that have arisen in implementation.