Global Digital Finance (GDF), an organization that advocates on behalf of the digital asset industry, has distributed a letter sent to the Financial Action Task Force (FATF) pertaining to guidelines regarding the regulation of virtual assets and virtual asset service providers or “VASPs.”
FATF is a global money laundering and terrorist financing watchdog. An inter-governmental organization, FATF seeks to set standards that aim to prevent illicit activities. FATF reports more than 200 countries and jurisdictions that are committed to implementing FATF guidelines.
For some time now, FATF has targeted the emerging digital asset or crypto sector for a more stringent regulatory approach. Perhaps most notably, is the “travel rule” where VASPs may be required to maintain detailed information on both buyers and sellers of crypto-assets.
GDF has submitted comments on the most recent FATF draft guidance. GDF states that it is appreciative of the additional clarifications provided by the FATF Guidance, particularly in respect of the travel rule, but concerns remain. The law of unintended consequences may undermine the industry.
Some of the potential issues include:
- Discrepancies in the Level-Playing Field concepts may have unintended consequences, particularly for centralized VASPs who may face increasing regulatory burdens compared to other sectors. GDF recommends the level-playing field concept should be based on functional and operational equivalency
- Parties may be classified as VASPs who may not, in fact, be responsible for AML/CFT governance of a given VA project so may face an unnecessary regulatory burden, alongside increasing responsibilities for supervisors.
- Guidance towards countries may give rise to VA restrictions that are disproportionate or not appropriately assessed for the inherent risk. Further, the Guidance notes training for competent authorities and supervisors but not for national risk assessors. The consequences may stifle innovation, cause liquidity events, and limit advances towards financial inclusion – all of which would be detrimental to customers as well as technological developments in the financial ecosystem.
GDF’s letter is available below. More on FATF’s 6th draft guidance is available here.