AML Obligations and FATF– What You Should Be Doing to Reduce Fraud

Posted by Kelvin Chandran on 3/13/19 3:13 PM
Kelvin Chandran
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AML Obligations FATF taskforce

When considering the various regulations surrounding cryptocurrency, it’s sometime difficult for organisations and individuals to keep up. At local, provincial, and national levels, there are all sorts of policies that apply to companies (i.e. crypto projects and crypto exchanges) that are operating in this sector.

The fact remains that very little legislation exists at the international level. However, this appears to be changing. The Financial Action Task Force (FATF) recently issued an ‘interpretive note’ on mitigating risks associated with virtual assets. Here’s why this is a significant policy development and how it could impact crypto-focused startups across the globe.


What is FATF?


FATF stands for the Financial Action Task Force. According to the official website of this organisation, it “is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing”. It is comprised of 36 member jurisdictions, 2 regional organisations, and numerous observer organisations. Since FATF was founded in 1989, it has been a major player in financial regulations at the international level.

For instance, in 1990, it enacted a series of Recommendations. These were revised in 1996 and again in 2003 in efforts to keep up with the evolving threat of money laundering and establish a common framework for AML guidelines. Although governmental organisations at various other levels in different jurisdictions also have district policies, FATF continues to serve a crucial role in forming a commonly-accepted standard that guides the development of regulations.


New FATF Guidelines on Crypto


On February 22, 2019, FATF issued a public statement for mitigating the risks from virtual assets. The full, official statement can be found here. Recognising the need to once again adapt to the changing global financial system, FATF members worked on the release of an “Interpretive Note to Recommendation 15”. FATF amended Recommendation 15 in October 2018 to clarify how FATF standards apply to activities or operations involving virtual assets. Although the text of Paragraph 7(b) has yet to be finalised, all other aspects of the interpretive note have been. It will be formally adopted as part of the FATF Standards in June 2019.

There are several key takeaways from this update. It’s true that FATF Recommendations merely outline how governments should enact policies and doesn’t serve as a be all end all policy. Still, this could very well determine how governments form policies in the coming years. FATF guidelines are somewhat general, but the big-picture message is clear. Essentially, the purpose of this latest note is to recommend that governments enforce AML policies on virtual assets (i.e. cryptocurrencies).

For example, the opening paragraph of the text states: “Countries should consider virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”. Countries should apply the relevant measures under the FATF Recommendations to virtual assets and virtual asset service providers (VASPs).”

It also obliges virtual asset entities to ensure that KYC is completed and that screening is carried out on the sender and recipient of wires. Crypto-related businesses that fail to do these tasks potentially risk regulatory violations. Depending on a variety of factors (i.e. jurisdiction, crime severity, etc.), this could even mean significant penalties levied by governments. We’ve already seen numerous instances of regulatory breaches in traditional banking and even a few with cryptocurrency exchanges.


AML Solutions

AML/CFT identity verification

Even before the passage of the latest FATF Recommendation, some of the solutions to ensuring better compliance efforts in the crypto space have already been well established. This update only solidifies the fact that more governments are placing an increasing amount of emphasis on regulatory compliance for cryptocurrencies.

Organisations in this space have an obligation to not only make an effort towards creating better policies but also integrate effective technical solutions. After all, the goal of cryptocurrency projects, exchanges, and other related-businesses should be to remain compliant while also keeping expenditures to a minimum when possible. Solutions like SIngleSource Crypto-AML provide the ability to conduct high-quality wallet screening processes that are also cost-effective. Furthermore, the combination of this solution and SingleSource eKYC can make it even easier to ensure that crypto-related businesses are prepared in advance.

These solutions demonstrate the capabilities of blockchain, machine learning, and other technologies to serve as important foundations of both current and futures your regulatory compliance efforts. Crypto projects conducting token sales, crypto exchanges onboarding new traders, and decentralised applications (dApps) allowing digital transactions are all examples of organisations that should consider adopting proactive compliance strategies and regulation technologies.


Complete Guide to Organisational AML


Hopefully, this article gives you a better picture of what the FATF interpretive note on virtual assets means for current trends in AML/KYC regulations. This could potentially lead to a more unified international compliance standard.

Either way, in 2019, a number of technical solutions already exist that simplify compliance. Nevertheless, it’s crucial to be aware of the details surrounding global regulations, especially in the realm of virtual assets.

Additionally, it’s vital to understand the roles of organisations, governments, and individuals in regulatory compliance. For more info about AML obligations and reducing the risk of fraud, click here to read our complete guide to AML for organisations.


Topics: AML, Fraud prevention, FATF

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