Global Crypto Regulation Lags Behind: FATF Report Highlights Implementation Shortfalls

The Financial Action Task Force (FATF) has recently published a report highlighting significant implementation gaps in anti-money laundering and combating the financing of terrorism (AML/CFT) regulations for virtual assets and virtual asset service providers (VASPs).

Shortfalls in Implementation

According to the report, 28% of jurisdictions have yet to take enforcement action against VASPs, while a further 33% have not implemented the travel rule for VASPs. Moreover, 16 jurisdictions have not conducted a supervisory inspection or included VASPs in their current inspection plan.

Compliance Ratings

The FATF report assigned compliance ratings to each jurisdiction based on its mutual evaluation prior to this updated report. Notably, only the Bahamas was deemed fully compliant with R.15, with 13 jurisdictions yet to be evaluated for revised R.15 standards.

Implications

The findings of the report have significant consequences for both countries and the private sector.

Governments

Governments are reminded to prioritize the implementation of FATF standards for virtual assets based on individual risks assessed in National Risk Assessments. The report serves as an incentive for jurisdictions to allocate resources and ensure broader political support for national implementation efforts.

Private Companies

Private companies operating in the crypto sector must understand jurisdictional requirements regarding licensing, registration, and travel rule obligations. VASPs must also consider jurisdictional risk when formulating their AML/CFT risk assessment, as countries that fail to implement R.15 may lead to a disadvantageous global reputation for their virtual asset sector.

Regulatory Pressure

As regulatory pressure mounts, companies can expect increasing obligations on VASPs, including exchanges, brokers, and custodians. Regulators are likely to scrutinize the active use of risk monitoring and mitigating tools, such as blockchain analytics tools, to ensure compliance with AML/CFT regulations.

Support from Chainalysis

Chainalysis, a leading provider of cryptocurrency data and analysis, is well-positioned to support jurisdictions and private sector organizations in assessing their individual level of AML/CFT risk from virtual assets and VASP activity. The company offers best-in-class solutions and training opportunities to help VASPs prepare for comprehensive AML/CFT risk assessments and ongoing compliance.

Conclusion

In light of these findings, it is essential for countries and companies to prioritize the implementation of FATF standards for virtual assets and VASPs to ensure a global level-playing field in AML/CFT obligations.