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  • Maksim Bozhko

Issue #3: 2021 | Virtual Assets Service Providers and Travel Review

26 April 2021


The 2019 guidance placed clear anti-money laundering and financing of terrorism (AML/CFT) obligations on Virtual Assets (VA) and Virtual Asset Service Provider (VASP). In July 2020, at its first 12-month Travel Review, the FATF committed to update the 2019 guidance and provide guidance on how the FATF standards apply to the stablecoins.

The FATF's revised document has updated six areas: the guidance covers virtual asset (VA), virtual asset service provider (VASP), and decentralized finance (DeFi). The new directions of the guidance will affect the Defi developers and platforms, directly through transaction fees or indirectly through the fluctuation of the price of a VA to pay for fees; things of that nature would potentially fall under the umbrella of VASPs.

Which entities are considered to be VASPs?

The following entities are considered to be VASPs:

  • decentralized exchanges (DEXs),

  • specific decentralized application (dApp) owners and operators

  • crypto escrow services (alluding to DeFi protocols), and

  • specifically non-fungible tokens (NFTs) could facilitate money laundering and terrorism funding (ML/TF)activities.

Which documents are required for VASPs?

  • best practice guidelines for counterparty VASP due diligence

  • obligations for VASPs to assess and mitigate proliferation financing (PF) risks

  • options for mitigating peer-to-peer (P2P) transfer risks such as unhosted wallet transfers

  • further FATF Travel Rule guidance and clarifications

What do these documents provide guidance to?

The document provides updated guidance in six primary areas to:

  • clarify the definitions of VA and VASP to make clear that these definitions are expansive and there should not be a case where the FATF Standards do not cover a relevant financial asset;

  • guide how the FATF Standards apply to so-called stablecoins;

  • provide additional guidance for the public and private sectors on the implementation of the 'travel rule';

  • provide updated guidance on the licensing and registration of VASP;

  • provide additional guidance on the risks and potential risk mitigants for peer-to-peer transactions;

  • include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.

What is FATF's stand?

FATF aims to minimize the opportunity for "regulatory arbitrage" between sectors and countries. Recommendation 16 on Wire Transfers 'the travel rule'; identifying the customers and performing sanctions screening of transactions and implementing the travel rule of moving beneficiary and original information seems to imply expanding the definition of VA/ VASP and making the DeFi protocols centralized.

The FATF will give the private sector until 20 April 2021 to comment and seek feedback and views from the community.

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