FATF Seeking Crypto Market Participants’ Views on Updated Guidance Covering Six Main Areas
The updated guidance is not good for the crypto market, but because FATF is not a democratic body, nothing that it issues is immediately binding.
Last week, the Financial Action Task Force (FATF) released a draft, updating the guidance from June 2019 for the cryptocurrency market and virtual asset service providers (VASPs).
After committing to updating the Guidance in July 2020 and reporting to the G20 on stablecoins, the agency has revised the document and now covers six main areas.
It involves clarifying the definitions of Virtual Assets and Virtual Assets and Virtual Asset Service Providers (VASPs) to make it expansive so that no relevant financial asset is left out on the licensing and registration of VASPs, and Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.
Also, guidance on how the FATF Standards apply to stablecoins, additional guidance on the risks and potential risk mitigates for peer-to-peer transactions, and the implementation of the ‘travel rule.’
According to Peter Van Valkenburgh, Director of Research cryptocurrency think tank CoinCenter, this is not good for the crypto market.
The previous guidance adopted by FinCEN was more about the “independent control” standard, but the update “would reverse much of what is good about existing AML policy toward crypto,” he wrote.
Up for Consultation
The updated guidance has some big issues in terms of customer counterparty identification that was seen in the recent FinCEN midnight rulemaking and restricting p2p and private transactions.
Also, it calls for surveillance obligations for non-custodial entities, which can cover participants in smart contracts, multi-sig minority keyholders, and even potentially including DEX software developers or contract participants, and Lightning Network node operators requiring them to register and conduct AML surveillance.
However, given that FATF is not a democratic body, nothing that it issues is immediately binding.
To maintain a level playing field for VASPs and minimize the opportunity for regulatory arbitrage between sectors and countries, FATF is proposing the updates on which they are seeking public views.
“The FATF is consulting private sector stakeholders before finalizing the revisions to the Guidance… We primarily seek views from representatives from the VA community, including academics and policy bodies, VASPs, technology developers and providers (particularly concerning the travel rule), other regulated entities (such as banks), but also welcome views from authorities.”
The report of this review will be considered in June 2021.
Separately, the FATF is also considering the implementation of the revised FATF Standards on VAs and VASPs.