The Financial Action Task Force (FATF) has released updated guidance for firms handling cryptocurrencies and digital assets as part of its anti-money laundering (AML) efforts.

Countries must identify and minimize the risks related to virtual asset financial activities to comply with FATF guidelines. They also require licenses and registrations of virtual asset providers and monitoring of such providers.

FATF measures apply to VASPs the same as they do to financial institutions. VASPs and countries will be helped by this guidance to improve their understanding of their anti-money laundering and counter-terrorism financing obligations and to implement the FATF's requirements.

To begin with, the new guidance changes the definition of who is a VASP. The current definition is intended to exclude ancillary parties who do not engage or actively enable any of these covered activities, such as organizations that supply Internet or cloud services. In other words, VASPs must have control over crypto rather than simply facilitating its use, such as through writing computer code for a decentralized finance application.

Additionally, it updates the "travel rule," which requires financial institutions to record and report information about electronic fund transfer recipients and senders valued at least $3,000. This rule applies just to transfers between VASPs and not to transfers to a private wallet.

FATF's definition of VASPs includes any natural or legal person who is a business, participates in trading VA's, and provides financial services related to an issuer's offering and/or sale of VAs to or through another legal or natural person.

There is less clarity on how it applies to decentralized applications (DApps), which are blockchain-based services.

Guidelines clarify that decentralized projects are not necessarily VASPs, and that merely calling them decentralized does not mean they are. 

It states that "creators, owners, and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP."

Pavan A

CBW - External Analyst

INDIA