21 August 2020
Travel Rule Review
Across FATF jurisdictions, Travel Rule adoption and enforcement have been scarce, with jurisdictions reporting a lack of scalable solutions that encompass all compliance requirements for VASPs. While FATF's stance is neutral with regard to technology, it is becoming increasingly aware of many up-to-date solutions which signify that attempts are being made to standardize the messaging systems within the VASP community.
Even though it's optimistic, FATF has acknowledged the major obstacles for implementation, such as whether their VASP counterparty is registered or licensed in its jurisdiction and has sufficient AML/CFT supervision, whether there is a broader compliance for conducting transactions with VASP customers via their private and unhosted wallets, data batch processing, interoperability challenges, and if the sunrise problem will potentially make it troublesome and risky for VASPs from early adopter nations to do business with exchanges in laggard jurisdictions. With immediate solutions being few and far in between, FATF’s Virtual Asset Contact Group—a workgroup which is supposed to monitor and engage the virtual asset sector reaffirmed the decision to partner up with the industry in order to identify and promote feasible solutions to current and future barriers as both VASPs and regulators are working to enable Travel Rule implementation. FATF expects to close the gap to a deployable Travel Rule solution throughout the next 12 months, while relying on the community to further diversify and redouble their efforts in order to engage reluctant VASPs and discover the remaining issues, .
Hurrying to come to a Travel Rule compliance mechanism, industry collaboration is essential, with open-source projects and startups proving to be worthy frontrunners with their efforts set on integrability and ease of use across VASP protocols while keeping security and privacy values safe.
Continuation of collaboration and dialogue between VASPs and regulatory overseers is necessary as both the private and public sectors move through the unknown towards a safe, secure, and universally accessible worldwide digital payment system.
Future Risk Mitigation Strategies for Virtual Assets and Virtual Asset Service Providers The report shed new light on some problems with user and transaction volume which was associated with stablecoins and the insufficiency of private and public sector AML/CFT infrastructure in dealing with an increase of activity in the branch.
Exasperated further by the insufficiency of AML controls with regard to activities outside of VASPs-to-VASP transfers, the FATF suggested risk mitigation strategies such as:
- transaction or volume limits on peer-to-peer transactions
- requiring transactions to utilize an intermediary VASP or financial institution,
- the most severe one, banning or denying the use of unhosted wallet transfers.
FATF Further Steps for Crypto AML/CFT Compliance Under the German Presidency This meeting was China's president Xiangmin Liu's third and final meeting. The next leader of the organization will be Germany’s Marcus Pleyer. Germany has promised to endorse more rigorous anti-laundering regulations and further activity on dealing with five problem areas in time of their Presidency:
- Digital Transformation of AML/CFT
- Financing of ethnically or racially motivated terrorism
- Money laundering and migrant smuggling
- Environmental crime
- Illicit arms trafficking
Under the German Presidency, the FATF will keep building on the standards that have already been introduced to the virtual asset branch. Part of Germany’s plan to digitally transform AML/CFT is to launch a virtual asset risks monitoring initiative. Where the previous presidency’s lasted one year, Germany's will last two years. During that time, two studies will be conducted: a study on opportunities and challenges for VASPs/VAs to implement AML/CFT more efficiently, and a take stock of current VASP/VA data pooling and analysis for AML/CFT.