Delivering the most compliant blockchain
The Financial Action Task Force (FATF) has published a 12-month review of the revised FATF standards on Virtual Assets and Virtual Asset Service Providers. Noteworthy statements from this review are as follows:
- 35 out of 54 reporting jurisdictions advised that they have now implemented the revised FATF Standards, with 32 of these regulating VASPs and 3 of these prohibiting the operation of VASPs. The other 19 jurisdictions have not yet implemented the revised Standards in their national law: the majority of these (13) intended to regulate VASPs, 2 intended to prohibit VASPs, and 4 had yet to decide.
- For the 32 jurisdictions which advised that they have established regimes permitting VASPs, 30 have introduced either registration (18 jurisdictions) or licencing regimes (14 jurisdictions). 18 jurisdictions advised that they have extended their regime to included VASPs incorporated overseas but which offer products/services to customers in their jurisdiction and 20 jurisdictions advised that they have extended their regime to include VASPs conducting operations from their jurisdiction. 19 jurisdictions reported that they had publicly available list(s) of VASPs that they have registered or licenced.
- VASPs are required to implement Recommendation 16 (R.16), as set out in the Interpretative Note to Recommendation 15, which sets out wire transfer requirements (also known as “the travel rule”). It is a key AML/CFT measure to ensure that originators and beneficiaries of financial transactions are identifiable and are not anonymous; VASPs and financial institutions must comply with these requirements for virtual asset transfers. From the 32 jurisdictions that have implemented AML/CFT regulatory requirements for VASPs, 15 jurisdictions advised they had introduced R.16 requirements for VASPs. Some jurisdictions noted they were enforcing R.16 requirements, but several others stated that they had faced difficulty enforcing the R.16 requirements effectively and had delayed enforcement while waiting for holistic and scalable technological solutions to be developed. 17 jurisdictions advised that they had not introduced R.16 requirements for VASPs, with the delay generally again attributed to the lack of adequate holistic technology solutions.
- According to the FATF review, there was no technological solution(s) that enabled VASPs to comply with all aspects of the travel rule in a holistic, instantaneous and secure manner: as jurisdictions should fully implement AML/CFT obligations for VASPs, including the travel rule, the FATF calls upon the VASP sector to redouble its efforts towards the swift development of holistic technological solutions encompassing all aspects of the travel rule.
Arguably, our technological solution is the only one that could comply with all aspects in a “holistic, instantaneous and secure manner”, including all outstanding issues:
- VASPs are required to comply when participating in and provisioning of financial services related to an issuer’s offer and/or sale of a virtual asset: as previously discussed on this blog, current blockchains can’t comply with the “travel rule” (R.16) when issuing of new tokens; only our blockchain can.
- Sunrise issue: Less than half of FATF members have introduced travel rule requirements for VASPs and this gap may be larger in the FATF’s broader Global Network: it isn’t clear whether VASPs could transact with jurisdictions without travel rule requirements. Only our global blockchain covering identities from all the countries in the world doesn’t suffer from the sunrise issue.
- Currently, peer-to-peer transfers of virtual assets, without the use or involvement of a VASP or financial institution, are not explicitly subject to AML/CFT obligations under the revised FATF Standards. The lack of explicit coverage of peer-to-peer transactions via private/unhosted wallets was a source of concern for some jurisdictions (for example, China and Switzerland have also included them on their AML/CFT obligations); jurisdictions noted that transfers to the unregulated peer-to-peer sector could present a leak in tracing illicit flows of virtual assets. Again, this isn’t an issue in our blockchain.
Solving all these issues is only possible with our innovative inclusion of identity in Layer 1 of our blockchain.
Originally published at https://www.calctopia.com on July 21, 2020.