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FATF – Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers

MEDIA ROOM

November 22, 2021

On the 28th October 2021, The Financial Action Task Force (FATF), an inter-governmental body that sets international standards with an aim to prevent global money laundering and terrorist financing, released updated guidance related to Virtual Assets (VA) and Virtual Asset Service Providers (VASPs). The updated Guidance for a Risk-Based Approach for Virtual Assets and VASPs (hereinafter the “Guidance”) is part of the FATF’s ongoing efforts to monitor the virtual assets and virtual asset service provider sector. The FATF continues to remain vigilant and will closely monitor the VA and VASPs sector for any material changes that may require further revision or clarification of the FATF Standards. This includes in relation to areas covered in the Guidance document such as stablecoins, peer-to-peer transactions, non-fungible tokens and decentralised finance.

The Guidance stresses the need for countries, VASPs, and other entities that are involved in VA activities to understand the money laundering and terrorist financing risks arising from such activities and to take appropriate mitigating measures to manage those risks.The Guidance further analyses how VA activities and VASPs fall within the scope of the FATF Standards. It outlines the types of activities included in the VASP definition and provides examples of such activities that would fall within that definition as well as those that would potentially be excluded. Moreover, the Guidance highlights the elements necessary in order to qualify as a VASP, which are (a) acting as a business for or on behalf of another person and (b) providing or actively facilitating virtual asset-related activities. Despite being quite volumous, there are several notable points that are readily apparent.

Whilst the Guidance document is rather voluminous in nature, there are a number of noteworthy points that are apparent. In particular, the Guidance focuses on six main areas:

  1. clarifying the definitions of virtual asset and VASP to make clear that these definitions are expansive and there are no situations in which a relevant financial asset is not covered by the FATF Standards (either as a virtual asset or as another financial asset);

  2. providing guidance on how the FATF Standards apply to stablecoins and clarifying that a range of entities involved in stablecoin arrangements could qualify as VASPs under the FATF Standards;

  3. providing 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. providing updated guidance on the licensing and registration of VASPs;

  5. providing additional guidance for the public and private sectors on the implementation of the “Travel Rule”; and

  6. including principles of information-sharing and cooperation among VASP supervisors.

About the Author

This article has been authored by Simon Mangion, CSB Group Junior Advisor. For further information or any assistance, you may contact one of our experts on [email protected].