Financial Crime World

Title: FATF Publishes Report on Virtual Asset Implementation Status in Faroese Jurisdictions and Beyond

The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, recently released a report detailing the implementation status of its Recommendation 15 (R.15) on virtual assets and virtual asset service providers (VASPs) among its members and jurisdictions with significant VASP activity. Below is a summary of the report.

Purpose and Coverage

The digital nature of virtual assets necessitates global regulatory cooperation to prevent potential gaps and loopholes in the Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) frameworks governing VASPs. Following the 2018 upgrade of R.15, which established AML/CFT rules relevant to virtual assets and VASPs, FATF discovered in its 2023 report that most jurisdictions were non-compliant or only partially complied with the recommendation. This FATF report aims to increase transparency in implementation efforts while encouraging jurisdictions to prioritize efforts to fully implement R.15.

Impact

Jurisdictions that fully comply with R.15 will effectively deter criminal activities within their borders and contribute to a safer global economic landscape. Conversely, non-compliance can encourage illicit actors to use weak jurisdictions as havens for money laundering and terrorism financing, ultimately damaging the global reputation of the entire digital asset sector.

Table Findings

The table shows each jurisdiction’s progress on critical R.15 implementation measures, such as:

  1. Conducting and implementing risk assessments.
  2. Prohibiting or licensing VASPs.
  3. Applying customer due diligence and travel rule requirements.

The report also includes the ratings of jurisdictions already evaluated in mutual assessments prior to this update.

Key Takeaways

  • 58 jurisdictions are represented in the table, with only the Bahamas achieving full R.15 compliance based on a mutual evaluation in 2022. Thirteen jurisdictions have yet to be evaluated regarding R.15 revision.
  • Noteworthy jurisdictions with material virtual asset activity, aside from FATF members, include the Bahamas, Cayman Islands, Colombia, Cyprus, Egypt, Estonia, Gibraltar, Kazakhstan, Lithuania, Malta, Nigeria, Philippines, Poland, Seychelles, Thailand, Ukraine, United Arab Emirates, Venezuela, Vietnam, and the Virgin Islands (British).
  • Key areas for improvement include conducting and implementing risk assessments, licensing and registering VASPs, and enforcing sanctions against non-compliant VASPs.

Bahamas

The Bahamas are the only jurisdiction to have achieved full compliance with R.15. Despite being evaluated more recently than other FATF members, the Bahamian government demonstrated a strong commitment to AML/CFT regulations.

Significant Progress

  • The Bahamian government effectively implemented customer due diligence measures for both onboarding and ongoing monitoring of virtual asset customers.
  • The regulatory framework covers both centralized and decentralized virtual asset transactions.
  • Travel rule requirements apply to both domestic and international virtual asset transfers.
  • The regulatory oversight body is empowered to issue guidance to VASPs and enforce penalties for non-compliance.

The Bahamian government’s proactive approach to regulating virtual assets has positioned the jurisdiction as a global leader in virtual asset compliance.

In conclusion, FATF’s report sheds light on each jurisdiction’s progress in adhering to R.15 standards for virtual assets and VASPs. It highlights the importance of regulatory cooperation in shaping a robust and consistent framework to tackle money laundering and terrorist financing risks associated with virtual assets. Further efforts are necessary to ensure comprehensive implementation and promote a level playing field for virtual asset sector regulation globally.