How Will the Updated FATF Guidelines for VASP & VA Affect The Crypto Market.
A look into the FATF Updated Guidance for VAs & VASPs.
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Ever heard about FATF? The FATF is one of the international organizations that appears to wield unusual power despite its inability to create regulations. The FATF was founded to combat money laundering, but its mandate has since expanded to "preserving the integrity of the financial system."
It is important to remember that FATF guidance is not legally binding and does not supersede national authorities' decisions. Really?
Ok let’s dive into the report.
How can the updated guidance for virtual assets ("VAs") and virtual asset service providers ("VASPs") released by the Financial Action Task Force ("FATF"), the global money laundering and terrorist financing watchdog, on October 28, affect the Crypto market? And can it really affect it?
The updated guidance was published due to the previous report being too broad and vague.
This new report is part of the FATF's ongoing monitoring of the Crypto assets and Crypto platforms sector, includes long-awaited clarifications and comments on DeFi protocols, NFTs, stable coins, travel rule application, and other topics.
The report is 111 pages long and includes definitions and how Governments could implement the “FATF Recommendation”
VAs are defined as "a digital representation of value that can be traded or transferred digitally and used for payment or investment purposes." Digital representations of CBDCs, securities, and other financial assets that are already covered elsewhere in the FATF Recommendations are not considered virtual assets.” When in doubt, the FATF recommends that regulators use a "functional equivalence and objective-based approach," encouraging understanding of assets' functionality and purpose.
"Any natural or legal person who conducts one or more of the following activities or operations for or on behalf of another natural or legal person" is defined as a VASP by FATF.
The exchange of Virtual Assets and fiat currencies.
Swapping of one or more types of Virtual Assets.
Storing Virtual Asset and/or administration, as well as virtual Asset control instruments
Taking part in VA services.
Transferring VAs (is peer - peer included?)
Part 3 of the report explains;
Depending on the assessed risks associated with P2P transactions, or certain types of P2P transactions, countries may consider and implement as appropriate options to mitigate these risks at a national level. These measures may include:
controls that facilitate visibility of P2P activity and/or VA activity crossing between obliged entities and non-obliged entities (these controls could include VA equivalents to currency transaction reports or a record-keeping rule relating to such transfers)
ongoing risk-based enhanced supervision of VASPs and entities operating in the VA space with a specific focus on unhosted wallet transactions (e.g., onsite and off-site supervision to confirm whether a VASP has complied with the regulations in place concerning these transactions)
obliging VASPs to facilitate transactions only to/from addresses/sources that have been deemed acceptable in line with their RBA.
The FATF also calls on countries and VASPs to understand risks associated with peer-to-peer (P2P) transactions, which are transactions in VAs that do not involve obliged entities, and as well as the types and drivers of P2P transactions. As such, the Guidance expands on the risks and the tools available to countries to address the ML/TF risks for P2P transactions.
Although the report was supposed to be as clear as crystal, that seems not to be the case e.i,
The VASP does not appear to cover multi-signature wallets where "a person maintains unilateral control of their assets at all times." However, only if it does not "actively facilitate" the transfer. Unfortunately, no explanation was provided for what "active facilitation" would entail.
The report states the concept of owner vs. operator and notes that anyone with "sufficient influence" over a protocol qualifies as a VASP. It's unclear how to define how much influence is "sufficient" or how that should be measured.
Non-Fungible Token NFTs were not categorized as VAs.
But the FATF clarified that the travel rule does not apply to transfers between a VASP and an unhosted wallet, effectively excluding fees paid to validators and miners.
“VASPs or FIs involved in stablecoins should be supervised in the same manner as VAs or financial assets as appropriate.”
In my opinion this will only make Crypto stronger & grow more decentralized on full throttle!
Here is the full report or In Brief
We’ll have more info regarding this subject & how Governments will react to this “recommendation"
Cheers!
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