Virtual Assets

 The FATF's focus on virtual assets

 

How do the FATF Standards apply?

     

Blockchain, bitcoin, crypto assets, virtual currencies…a whole new vocabulary describing innovative technology to swiftly transfer value around the world. The fast-evolving blockchain and distributed ledger technologies have the potential to radically change the financial landscape. But, their speed, global reach and above all - anonymity - also attract those who want to escape authorities’ scrutiny.

Blockchain originated just over 10 years ago. Since then, virtual assets have become widely available and have started to be used as payment products. However, without established regulation and oversight, the sector is often still referred to as the “wild west” of the finance industry.

How can criminals misuse virtual assets? 

In 2017 the ‘Wannacry’ ransomware attack held thousands of computer systems hostage until the victims paid hackers a ransom in bitcoin. The cost of the attack went far beyond the ransom payments, it resulted in an estimated USD 8 billion in damages to hospitals, banks and businesses across the world. Other ransomware attacks have happened since and appear to be on the rise.

 

Virtual Assets - Red Flag Indicators

FATF focus on virtual assets

 
Virtual assets have many potential benefits. They could make payments easier, faster, and cheaper; and provide alternative methods for those without access to regular financial products.

But without proper regulation, they risk becoming a virtual safe haven for the financial transactions of criminals and terrorists. The FATF has been closely monitoring the developments in the cryptosphere and in recent years has seen the first countries start to regulate the virtual asset sector, while others have prohibited virtual assets altogether. However, as yet, the majority of countries have not taken any action. These gaps in the global regulatory system have created significant loopholes for criminals and terrorists to abuse.

With support from the G20, the FATF has issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing. The term ‘virtual asset’ refers to any digital representation of value that can be digitally traded, transferred or used for payment. It does not include the digital representation of fiat currencies.

The FATF standards ensure that virtual assets are treated fairly, applying the same safeguards as the financial sector. FATF’s rules apply when virtual assets are exchanged for fiat currency, but also when they are transferred from one virtual asset to another. 

" While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering and countering the financing of terrorism.

G20 Finance Ministers and Central Bank Governors Meeting, Fukuoka, Japan, June 9, 2019

Taking effective action

Countries need to implement the FATF’s measures, and soon. This will ensure transparency of virtual asset transactions and keep funds with links to crime and terrorism out of the cryptosphere.

Today, many virtual asset service providers are perceived as ‘risky business’ and denied access to bank accounts and other regular financial services. While implementing the FATF’s requirements will be challenging for the sector, it will ultimately increase trust in blockchain technology as the backbone behind a robust and viable means to transfer value.

The FATF has revised its assessment methodology, which sets out how it will determine whether countries have successfully implemented the FATF Recommendations and are regulating the virtual asset service provider sector.

Preparing for the future

The technology behind virtual assets is fast-moving. Future developments should not create loopholes that terrorists and criminals can exploit.

 

 

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