Supervisory authorities from around the world met to discuss how to supervise and regulate virtual assets and virtual asset service providers (VASPs) in Paris on January 9, 2020. It was the first chance for supervisors to discuss how to implement these new measures since the Financial Action Task Force (FATF) finalized them in June 2019.
The President of the FATF, Mr. Xiangmin Liu, opened the second meeting of the Forum of FATF Supervisors. He emphasized the importance of supervision for an effective anti-money laundering (AML) and anti-terrorist financing (CFT) regime. 135 representatives of over 50 delegations dealing with virtual asset supervision attended this meeting.
These regimes can only remain effective if they are regularly refined and strengthened to address evolving risks and threats. The FATF has made significant progress by agreeing on new global standards to prevent the misuse of virtual assets and VASPs for transactions with links to crime or terrorism. The challenge now is to effectively implement these new standards in practice. However, by bringing together practitioners from around the world, the FATF is beginning to develop a global knowledge base of what works in the surveillance of virtual assets. This will help to ensure a consistent global supervisory approach to supervision and will also help the VASP sector adapt to the new regulatory environment.
Main topics of the FATF Supervisors‘ Forum
Participants in this Forum shared their knowledge and experience in the field of virtual assets and VASP supervision. The Forum discussed three main areas:
- The lessons learned so far from countries that have already established supervisory systems for VASPs and are already supervising them. The supervisors gave examples of positive measures taken by VASPs to fulfill their AML/CFT obligations and also discussed common challenges for the VASP sector.
- Common issues in drafting laws and regulations for VASPs. With the completion of the FATF standards for VASPs in June 2019, all countries must ensure that they have an AML/CFT regime for VASPs. The representatives shared their approach to developing an AML/CFT regime for VASPs in their jurisdictions and explained how they implement the FATF rules.
- The tools, skills, procedures, and technologies needed by regulators to effectively supervise VASPs. Participants explored what sources of information may be useful, what software and other products can help, and also what kinds of human resources supervisors may need. The importance of international cooperation was also highlighted, as virtual assets are inherently global products.
The meeting identified several areas requiring further action. These will be taken forward at the FATF Plenary and at further meetings of the Forum of Supervisors to be held in May 2020.
Objectives of the FATF
International standard-setting bodies such as the FATF have focused on addressing money laundering risks. Supervisors play an essential role in identifying, combating and mitigating the risks of AML and CTF in financial and non-financial companies. They also ensure that supervised companies implement relevant FATF standards. As crypto-assets become increasingly more prevalent and integrated into the global payment system, regulators and governments — in addition to the general concern about financial crime — increasingly see them as a regulatory risk for the financial systems.
FATF has sought to bring clarity and provide measures for jurisdictions to tackle potential AML/CTF risks in its report on Virtual Currencies “Key Definitions and Potential AML/CFT Risks” in 2014. In June 2019, the FATF updated this report with new definitions and adopted an Interpretive Note to FATF Recommendation 15 requiring effective regulation, supervision, and monitoring of what FATF referred to as “virtual asset services providers”.
The FATF, established in 1989 by the Ministers of the Member States, is an intergovernmental body. Its objectives are to set standards and promote the effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is, therefore, a „policy-making body“ that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
It has developed a set of recommendations that have become the international standard for combating money laundering and the financing of terrorism and the proliferation of weapons of mass destruction. These form the basis for a coordinated response to these threats to the integrity of the financial system and help to ensure a level playing field. The FATF Recommendations, first published in 1990. They have been revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up-to-date and relevant, and are intended to be of universal application.
The FATF monitors the progress of its members in implementing the necessary measures. Furthermore, it reviews techniques and countermeasures against money laundering and terrorist financing and promotes the adoption and implementation of appropriate measures worldwide. In cooperation with other international players, the FATF works to identify national weaknesses with the aim of protecting the international financial system from abuse.
The FATF’s decision-making body, the FATF Plenary Session, meets three times a year.