FATF – Virtual Assets
Virtual assets, or crypto assets, are digital representations of value that can be used in digital transactions but do not include digital fiat currencies. These assets offer benefits like easier, faster, and cheaper payments, especially for those without traditional financial access. However, they come with risks such as being unregulated, vulnerable to value loss, cyberattacks, and scams. There’s also a danger of them being used for criminal and terrorist activities due to insufficient regulation.
The Financial Action Task Force (FATF) is actively monitoring the cryptocurrency sector and has set global standards to prevent money laundering and terrorist financing through virtual assets. While some countries have begun regulating these assets, many still lack effective regulations, creating loopholes for criminal exploitation.
Effective action includes countries implementing FATF Standards, with virtual asset providers adopting measures similar to financial institutions, such as customer due diligence, record-keeping, and reporting suspicious transactions. Currently, many virtual asset service providers face challenges, like being denied banking services, due to perceived risks. Implementing FATF requirements can increase trust in blockchain technology.
The FATF Standards require countries to understand and mitigate the risks in this sector, license virtual asset service providers, and supervise them like other financial institutions. Service providers must implement preventive measures, maintain transaction records, and securely transmit information about transaction parties.
Regulating this sector is complex, requiring national authorities to understand the technology and service providers to comply with financial regulations. The FATF has issued guidance for a risk-based approach, including understanding risks, licensing, customer identification, secure information storage, and reporting suspicious transactions. They engage with the industry through forums and a Contact Group to explain requirements and monitor industry developments, fostering a partnership between governments and service providers.