The Slow Implementation of FATF Rules in the Virtual Assets Sector

The Financial Action Task Force (FATF) has recently expressed concerns regarding the slow implementation of the rules it had set forth to regulate the virtual digital assets sector. According to a report issued by the FATF, the delay in the deployment and adoption of these crypto-related rules is creating a window for criminal activities to flourish. The organisation has dedicated 12 months to analysing data in order to compile a list of nations and their respective levels of compliance with the rules.

The FATF, a Paris-based global financial watchdog, has been working tirelessly to address issues related to the misuse of crypto assets by criminals for activities such as money laundering and terror financing. In November 2022, the FATF informally mandated countries to adhere to its anti-money laundering (AML) regulations to avoid being placed on the ‘grey list’. One of the key rules outlined by the FATF is that countries must only permit licensed firms to engage in transactions involving crypto assets. Additionally, nations are required to gather information about both the senders and receivers of crypto assets, particularly in cases of suspicious transactions.

The FATF has emphasized the significance of countries fully implementing its requirements concerning virtual assets and virtual asset service providers (VASPs) in order to prevent them from being exploited for illicit financial activities. Virtual assets are considered to be inherently international and borderless, therefore, inadequate regulation of VASPs in one jurisdiction can have serious global implications. The organisation’s aim is to encourage jurisdictions with significant VASP activity to promptly implement Recommendation 15 as outlined by the FATF.

India has been noted as a country that has successfully implemented all of the rules specified by the FATF. However, several nations such as Australia, Finland, Greece, Malaysia, and Portugal are currently in the process of deploying FATF rules within their jurisdictions. Ashish Singhal, the Co-founder of India’s CoinSwitch crypto exchange, has lauded India’s proactive approach in conducting a risk assessment of VASPs and adhering to the Travel Rule. Singhal highlighted that India’s Mutual Evaluation took place last year and a potential plenary discussion is scheduled for June of this year.

The slow implementation of FATF rules in the virtual assets sector poses significant risks in terms of illicit financial activities and criminal exploitation. It is crucial for nations to expedite the deployment of these regulations to prevent the misuse of crypto assets for nefarious purposes. The FATF’s continued efforts to monitor and evaluate countries’ compliance with its rules are essential in ensuring the integrity of the global financial system.