https://digitalchamber.org/fatf-guidance-update/

Introduction

The Financial Action Task Force (FATF) yesterday published Updated Guidance for a Risk Based Approach for Virtual Assets and Virtual Asset Providers. This revision amends the FATF guidance originally published in 2019 and contains some significant changes from the March 2021 proposed draft update.

The Chamber of Digital Commerce has been engaged in ongoing dialogue with FATF, and was asked to provide additional input following the March draft. We are pleased to see that a number of our recommendations were incorporated into the final guidance and we look forward to continued proactive engagement with FATF on these important issues.

Summary

The updated guidance provides clarity in a number of areas with respect to how the FATF Recommendations should apply to Virtual Asset (VA) activities and Virtual Asset Service Providers (VASPs). As described by FATF, the updated guidance focuses on six key areas:

1. Clarification of the definitions of VAs and VASPs;
2. Guidance on how the FATF standards apply to stablecoins;
3. Additional guidance on the risks and the tools available to countries to address the ML/TF risks for peer-to-peer transactions;
4. Additional guidance for the public and private sectors on the implementation of the “Travel rule;”
5. Updated guidance on the licensing and registration of VASPs; and
6. Principles for information sharing and cooperation amongst VASP supervisors.

The following summarizes a number of key changes in the updated guidance with a particular focus on changes of likely interest to Chamber members. However, given the breadth of the changes, the following is not an exhaustive list.

As a whole, the updated guidance is a significant improvement over the March draft, but, in the view of the Chamber, there remains a number of areas for future improvement.

Definitions of VA and VASP

Virtual Asset

The guidance does not change the underlying definitions of a virtual asset (VA) and virtual asset service providers (VASPs), but does elaborate in significant detail on how the definitions of those terms should be understood and applied.

FATF defines a VA as any item that is “digital” and “digitally traded or transferred and can be capable of being used for payment or investment purposes.” The updated guidance clarifies how the term applies to a number of specific asset types. For example, paragraph 17 explains the guidance does not address central bank digital currencies (CBDCs), which it states “are categorized as fiat currency.” On the other hand, it clarifies that stablecoins are VAs and highlights a number of potential risks linked to stablecoins, primarily stemming from “greater potential for mass-adoption.”