Shearman & Sterling | FinTech | New AML Recommendations for Virtual Assets
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  • New AML Recommendations for Virtual Assets

    Citing an “urgent need” to step up global efforts to prevent the use of virtual assets for crime and terrorism, the Financial Action Task Force (FATF) updated its recommendations for the regulation of virtual assets.  Among other things, the FATF recommended broader definitions of “virtual assets” and “virtual asset service providers” to include exchanges, wallet providers and certain initial coin offering service providers. 

    The FATF is an inter-governmental policy-making body responsible for promoting the implementation of legal, regulatory and operational anti-money laundering (AML) and combatting the financing of terrorism (CFT) standards.  Its recommendations are not binding law, but rather a set of standards intended for member nations to incorporate within their rulemakings.  FATF President Marshall Billingslea has said that the organization also plans to issue AML/CFT rule recommendations in respect of virtual assets and clarify how the FATF expects such rules to be enforced by June 2019.  Additionally, the FATF plans to review the scope of activities covered under its amended recommendations and glossary within the next 12 months and consider whether further updates are necessary. 

    The October 19, 2018 update outlines a risk-based approach to virtual asset regulation and suggests that jurisdictions ensure that AML/CFT regulations apply to virtual asset service providers.  The FATF also recommends that virtual asset service providers be licensed or registered and subject to compliance monitoring.  However, the FATF said that jurisdictions should maintain the flexibility to decide how virtual asset service providers should be classified under their AML/CFT regulations (i.e. as financial institutions, designated non-financial businesses or professions, etc.).

    While some jurisdictions have already implemented AML/CFT regulations in respect of virtual assets, continuing attention by the FATF is likely to result in additional jurisdictions adopting regulations in line with these recommendations.  We suggest that market participants continue to monitor any further rule recommendations put forth by the FATF, as well as how, or if, jurisdictions implement such recommendations into their regulatory framework.