Crypto regulatory affairs: FATF publishes its revised guidelines for virtual assets

🌎 FATF publishes its revised guidelines for virtual assets

The Financial Action Task Force (FATF) has released its long-awaited updated instructions for Virtual Asset Service Providers (VASP). The global agency informs national regulators about money laundering and terrorist financing (ML/TF) risks associated with cryptoassets and provides guidance on regulatory regimes. Specifically, the FATF standards “require all jurisdictions to impose certain activity-based AML/CFT requirements on financial institutions (FIs), certain non-financial businesses and professions (DNFBPs) and VASPs and ensure their compliance with those obligations.

As suggested in springguidance is more detailed when decentralized finance (DeFi) arrangements fall within the scope of FATF requirements. Specifically, developers who “maintain control or sufficient influence” over a project may be subject to anti-money laundering requirements if regulators choose to adopt a broad definition of what is categorized as a VASP. However, this updated guidance clarifies that individual token holders who do not control or significantly influence the project do not qualify as VASPs. The main challenge will be for national regulators to define the scope of what constitutes sufficient influence.

Regarding peer-to-peer (P2P) transactions, the updated FATF guidelines recognize that they can pose a AML/CFT risk. However, the FATF removed the problematic suggestion in paragraph 106(c) of its Private sector consultation in March 2021 that countries may consider “refusal to license VASPs if they allow transactions to/from non-mandatory entities (ie private/non-hosted wallets)”. Elliptic recommended this change his answer to consultation in April 2021 and we are happy to see that impractical measure removed.

The travel rule (recommendation 16) remains largely unchanged since spring. It provides more details about the required data and expected actions of the ordering VASP and the user VASP. However, the FATF recognizes that jurisdictions operate at different paces, meaning that some VASPs will need to comply with the Travel Rules before others. This has been described as a ‘sunrise problem’, when VASPs complying with the Travel Rules deal with VASPs in other jurisdictions where this legislation has not yet come into force.

Nonetheless, the FATF suggests that “businesses may require users to comply with travel rules by contract or business practice.” This refers to the counterparty VASP due diligence section of the guidance. It imposes data collection and due diligence requirements on cryptoasset companies. This highlights the importance of running a robust compliance program when dealing with cryptoassets.

Schedule a demo to learn how Elliptic can help you comply with and follow the FATF guidelines Elliptical to keep up with the latest developments.

🇳🇬 Nigeria Launches Its Central Bank Digital Currency

Central Bank of Nigeria confirmed eNaira unveiling on 25 October 2021 eNaira is the digital currency of the Central Bank of Nigeria (CBDC). Financial inclusion is cited as the main driver of this project. The Central Bank of Nigeria noted that it will continue to modify eNair-related platforms by working with industry stakeholders. According to eNaira design paper financial institutions, which are responsible for receiving clients, will also have to comply with anti-money laundering and anti-terrorist financing requirements. These developments demonstrate the increasing involvement of states in the crypto-asset ecosystem, while reiterating the importance of compliance by financial institutions.

🇬🇧 HMRC is stepping up its efforts to investigate crypto assets

A spokesman for the British Inland Revenue HMRC said that the agency will send incentive letters to cryptoasset holders to remind them of their reporting obligations. Crypto-assets are subject to tax legislation, including capital gains tax, profits tax and corporation tax, as the case may be. More details on tax legislation can be found at HMRC’s guide to cryptoassets. HMRC said it was stepping up enforcement of these rules by contacting UK stock exchanges. This reflects a global trend towards increased enforcement of tax rules in the crypto space.

🇺🇸 The FDIC is investigating how banks can manage cryptoassets

President of the US Federal Deposit Insurance Corporation (FDIC), Jelena McWilliams, said remarks on her approach to innovation regulation at the Money 20/20 conference in Las Vegas last week. Most of her speech was focused on the regulation of cryptoassets. Her goal was to provide clear guidance on how the current legal framework can be applied to banks looking to engage in crypto-asset-related activities in the coming months. The chairman also mentioned that the FDIC is working closely with the Federal Reserve and the Office of the Comptroller of the Currency (OCC) to bring crypto-assets into the realm of traditional finance. To learn more about how Elliptic can help your bank meet existing AML/CFT requirements if you are considering starting a crypto asset custody service, read our recent guide, “How Your Bank Can Safeguard Crypto and Stay Compliant”.

🌎 International law enforcement efforts resulted in the seizure of crypto assets, illegal goods and 150 arrests

This week, Europol and US law enforcement agencies seized more than $4 million in crypto assets, 234 kilograms of drugs and 45 firearms in Operation Dark HunTor. Police forces have targeted cybercriminals who sell illicit goods on darknet markets. So far, 150 people have been arrested on three continents. This operation follows shutdown DarkMarketof what was then the largest illegal market in the world, in January 2021. The increase in these cross-border operations by the Joint Criminal Opioid and Darknet Enforcement (JCODE) team shows that authorities are closing in on cybercriminals. These arrests are parallel statements from US law enforcement officials who detailed plans to step up data-driven investigations into malicious crypto-asset activity. Learn more about how Elliptic’s intelligent tools help detection and prevention of financial crime into crypto through work with the public and private sector.

Schedule a demo to learn how Elliptic can help you comply with and follow the FATF guidelines Elliptical to keep up with the latest developments.