red 
FinCEN seeks comments on modernizing the AML/CFT approach
December 14, 2021 US Financial Crimes Enforcement Network (FinCEN) announced sought comments on the modernization of the US anti-money laundering and countering the financing of terrorism (AML/CFT) regulatory regime. Specifically, FinCEN said it is “interested in comments on ways to modernize the risk-based anti-money laundering and terrorist financing regulations and guidance issued under the Bank Secrecy Act (BSA) so that, on an ongoing basis, they protect US national security at a cost – efficient and effective way.”
The BSA, officially called the “Currency and Foreign Transaction Financial Recordkeeping and Reporting Act of 1970,” is the main regulation that seeks to detect and prevent money laundering and terrorist financing in the US. The Director of FinCEN is responsible for enforcing the BSA and related regulations.
BSA covers banks and non-bank financial institutions. This includes cryptocurrencies that fall under FinCEN’s money services category. FinCEN has made this clear from its 2013 Interpretation Guide regarding the applicability of the Bank Secrecy Act to cryptocurrencies.
FinCEN’s Request for Information Document acknowledges that: “[a]Innovation has presented new business and other opportunities, illicit financial threats have also evolved and present new challenges for financial institutions to comply with BSA obligations.”
FinCEN also sees increased efficiency for compliance practitioners and improved data analysis capabilities for authorities. Indeed, “FinCEN also recognizes that innovation and technological advances can improve the ability of financial institutions to meet their obligations under the BSA, facilitating the collection of information that can be very useful in combating a variety of financial crimes, and for U.S. government authorities to better analyze information provided by financial institutions .”
Crypto companies operating in the US may be particularly interested in providing comments to FinCEN on the following three issues:
“11. Are there any BSA regulations or guidelines that have become outdated due to changes in business compliance practices and/or technological innovations in the financial system or elsewhere? If so, how should FinCEN handle this?
12. Do FinCEN’s regulations and guidance sufficiently enable financial institutions to incorporate innovative and technological approaches to BSA compliance? If not, how can FinCEN facilitate greater use of these tools while ensuring that appropriate safeguards are in place and that highly useful information continues to be reported to government authorities? […]
26. How could BSA regulations or guidelines be more effective in light of innovative approaches and new technologies. Because should any BSA regulations or guidelines take into account technological advances, such as digital identification, machine learning and artificial intelligence? If so, how?”
Comments submitted to FinCEN will serve to inform its recommendations to Congress that may lead to legislative and administrative changes. Elliptic welcomes the opportunity to engage with the authorities and will make recommendations to the authorities in the coming weeks. FinCEN encourages all interested parties to submit your comments on this matter until 14.02.2022.
The authorities of Gibraltar consider themselves to be “highly compliant” with the FATF VASP standards
On December 14, 2021 Council of Europe Committee of Experts on Money Laundering and Terrorist Financing (MONEYVAL), published a report on Gibraltar’s implementation of 40 AML/CFT recommendations. The assessment covered the territory’s compliance with FATF guidelines on virtual assets. For this area, the jurisdiction has been upgraded to a “highly compliant” rating, up from “compliant” in 2019. This is not surprising as Gibraltar has taken a forward-looking approach to crypto regulation with a tailored regulatory framework. Indeed, MONEYVAL reported that: “there are requirements for VASPs to be licensed or registered for AML/CFT supervision purposes” and “Gibraltar applies adequate risk-based AML/CFT supervision and authorities may apply appropriate sanctions to VASPs”.
This review of AML/CFT policies comes at an important time as The FATF has published its updated guidelines related to crypto-asset business. As Gibraltar remains in the improved monitoring category, it is expected to report on its progress over the next three years. Regulators around the world need to act quickly to implement the AML/CFT recommendations. This will mitigate risk in their economy and avoid reputational damage.
British authorities zero in on cryptoasset financial stability risk and consumer protection
In its December 2021 Report on financial stabilityThe Bank of England pointed out that the rapid growth of crypto-asset activity could pose risks to financial stability. This is exacerbated by the growing links between cryptoassets and the financial system. The report points out that the market capitalization of cryptosets has grown tenfold since the beginning of 2020, reaching $2.6 trillion in November 2021.
The regulator is particularly concerned about the “unbacked” nature of most of these cryptoassets. Going further, the Bank of England believes that “[e]Improved regulatory and enforcement frameworks, both domestically and globally, are needed to influence developments in these fast-growing markets to manage risks, foster sustainable innovation and maintain broader confidence and integrity in the financial system.” He also welcomed HM Treasury’s proposal to introduce a regulatory regime for stablecoins, including Bank of England oversight of “systemic stablecoins”.
In the same week, Britain’s Advertising Standards Authority (ASA), the country’s advertising watchdog, banned seven ads promoting cryptoassets. The ASA found that most advertisers breached its code by “exploiting consumers’ inexperience or gullibility and trivializing cryptocurrency investment”.
OFAC is working with innocent parties to identify their assets in accordance with the Sanctions Directive
As Elliptical covered in November 2021, the Office of Foreign Assets Control (OFAC) sanctioned Chatex, a Latvian crypto-asset exchange used to launder ransomware proceeds. After this announcement, Chatex suspended all transactions on its platform. Details are now appearing on the impact of this sanctions directive. 370,000 users appear to be locked out of their accounts and unable to access their funds. OFAC officials were surprised to learn that the exchange had law-abiding users given its high exposure to ransomware actors. As such, users sign up for special OFAC licenses in an attempt to unblock and release their funds.
To limit your exposure to high-risk actors, ensure regulatory compliance and avoid being the target of enforcement actions. Learn more about how Elliptical Navigatorour real-time transaction tracking solution can help you stay compliant.
South Africa prepares to introduce crypto regulation
Unathi Kamalana, Commissioner of the Financial Sector Conduct Authority of South Africa (FSCA) he said preparing to release a new framework for cryptosets. The regulation has consumer protection in mind and is drafted in partnership with the prudential authority and the financial supervision board. Authorities are reportedly investigating the impact of cryptoassets on bank balance sheets, which could pave the way for financial institutions to offer cryptoservices and hold cryptoassets. The FSCA Commissioner does not believe that cryptoassets pose a systemic risk to the financial services sector.
This announcement follows the Intergovernmental Working Group on fintech June 2021 Crypto Asset Position Paper. The document pointed out that several agencies are making progress in bringing crypto activities under their jurisdiction. This includes requirements for crypto businesses “to comply with legal requirements aimed at […] BPPN/BPFT. This will include registering with the Financial Intelligence Center (FIC), conducting customer identification and verification, conducting customer due diligence, maintaining customer records and transaction information, monitoring suspicious and unusual activities on an ongoing basis, reporting liabilities to the FIC, including suspicious and unusual transactions.”
To learn more about how your business can prepare to meet these upcoming requirements and take advantage of opportunities in South Africa, schedule a demo with the Elliptic team.
Please note: This week’s weekly update on crypto regulatory issues will be the last for 2021. We’ll be back the week of January 10, 2022 to provide a full summary of key developments over the holiday period. We would like to take this opportunity to wish all our readers and subscribers happy holidays and a successful New Year.
