https://www.trmlabs.com/post/fatf-provides-final-guidance

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October 28, 2021

Today FATF released a final version of its Updated Guidance for a Risk Based Approach for Virtual Assets and Virtual Asset Providers with some significant changes from the earlier March 2021 draft guidance.

What you need to know:

TRM is hosting a webinar with the co-chairs of FATF's Virtual Assets Contact Group on November 9 to discuss the guidance. Register here.

Today the global Financial Action Task Force (FATF), sometimes thought of as the 'United Nations for anti-money laundering,' issued final guidance following the release of a draft in March this year of a "Risk-Based Approach to Virtual Assets and Virtual Asset Providers." The draft guidance covered many of crypto's most pressing topics, from non-fungible tokens (NFTs) to self hosted wallets and decentralized finance (DeFi) — TRM covered it here. The draft guidance came with a period of public consultation during which FATF received comments from across the cryptoverse. After 6-months of public and private sector consultation, today FATF released its Updated Guidance For A Risk Based Approach For Virtual Assets and Virtual Asset Providers (guidance or final guidance). Following the consultation period FATF made some pretty significant changes to the March draft guidance on issues such as NFTs, DeFi and self-hosted wallets. Here's what you need to know:

FATF clarifies and applies key definitions of Virtual Asset (VA) and Virtual Asset Provider (VASP) and encourages broad interpretation.

While the standards themselves may not have changed, the application of those standards on emerging technologies could make a world of difference, says FATF, citing "the rise of anonymity-enhanced cryptocurrencies (AECs), mixers and tumblers, decentralized platforms and exchanges, privacy wallets" that are used by illicit actors to obfuscate transactions and evade law enforcement and blockchain analytics.

In order to take on these emerging and evolving illicit finance risks, FATF has, over the years, provided, clarified and applied two critical definitions - Virtual Asset (VA) and Virtual Asset Service Provider (VASP) that they believe should be interpreted broadly to meet the needs of regulators reacting in real time to changes in technology:

A VA is any item that is "digital" and “digitally traded or transferred and can be capable of being used for payment or investment purposes.” While FATF intentionally created a broad definition in order to capture a wide range of activities, the "capable of" standard could result in almost anything being used for payment. We are likely to see ongoing discussion into the potential wide range of activities covered by this definition. FATF does make clear that VAs are not digital representations of fiat currencies such a central bank digital currencies (CBDCs).