This Week in AML

FATF: Review of Standards on Virtual Assets and Providers (Archive Edition)

The FATF has issued it’s second 12-month review of its revised standards for virtual assets and virtual asset providers. John Byrne, Executive Vice President and Elliot Berman, Creative Director of the AML RightSource staff, sit down and discuss the key elements of the review and its implications for global compliance in this emerging area.


FATF: Review of Standards on Virtual Assets and Providers (Archive Edition) TRANSCRIPT

Elliot Berman: Hi, this is Elliot Berman. This week John and I are taking off for the holiday. We want to bring you an archive edition of This Week in AML. 

This addition is from earlier this year when we discuss the FATF Review of Standards on Virtual Assets and Providers. We hope you enjoy this archive edition, and we will be back with you in January. Have a great holiday season. 

Elliot Berman: Hey, John, how are you this week?

John Byrne: Hi, Elliot. How's it going?

Elliot Berman: It's good. I'm in Phoenix, Arizona to watch a game in the NBA finals.

John Byrne: Well, good luck to the bucks, man.

Elliot Berman: Thank you very much. This week FATF, issued its second 12-month review of the revised standards on virtual assets and virtual assets, service providers. I assume you saw that.

John Byrne: I did. And obviously, a lot of us in the community are trying to figure out the scope and guard rails around crypto. This was an interesting exercise. Obviously, MTTF has created these standards, trying to figure out what the jurisdictions are doing. They're going to do more, but I thought this was a good indication that there's been movement.

Elliot Berman: If I got my timing right back in 2019, they issued the original standards—a lot of discussion and investigation. And then, the standards contemplated a periodic review. They did a 12-month review last July in 2020. And this is the second 12-month review. One of the things they pointed out is in addition to the 38 members of FATF, they had 90 other members who actually participated in the review, and this is a self-reporting process.

John Byrne: Right.

Elliot Berman: And it's interesting. They [FAFT] pointed out, for example, the challenges of virtual currencies and other virtual assets as it relates to the increasing challenges of ransomware.

John Byrne: Right. And one of the other things that stuck out from my perspective was the metrics on peer-to-peer transactions. Based on what they've seen and input from, I think seven blockchain analytic companies, they said that there's a potentially significant amount of virtual assets that are transferred in that space peer to peer. The share of illicit transactions are higher for those type of transactions compared with transactions with virtual asset service providers.

There is a lot of good data in there. And I thought that was particularly useful as we again try to figure out this very, to me, at least complicated world.

Elliot Berman: I agree with you. I thought that was interesting. The other thing that caught my eye was the fact that the report talks about one of the ways they measure effective implementation of the standards is how many countries or participating organizations - what the adoption of the travel rules are.

For our listeners, you'll recall that the travel rule is part of the regulations related to the bank secrecy act in the US, and it involves sending information along with transactions as they move through the system. These are my words, not FATF's words. But, really the gold standard is - there transparency, and are really serious about having a regime that's effective in terms of helping combat financial crime, is whether or not the travel rule or some version of it has been adopted and is effectively implemented.

John Byrne: Yeah, that's right. And, you know, I think connected to all of this in the US is that FinCEN's acting director has a background in this space and worked for chain analysis. They've added a new staff person with that background.

This morning Elliot, in the news US Senator Elizabeth Warren, who's on the Senate banking committee, has sent a letter to the SEC basically saying that the risk to consumers by what she's calling the highly opaque and volatile cryptocurrency market. It is a problem and blasted its lack of regulation, sort of consistent with FATF. FATF is trying to figure out where the gaps are, where the issues are in the US. Obviously, we're also trying to figure this out, and Senator Warren made it very clear that the demand in this space is skyrocketing.
But she at least calls the lack of what she's characterizing is lack of common sense. Regulation has put people at the mercy of fraudsters and manipulators. She doesn't really talk about the use of this for illicit transactions but just talks in general about the lack of information for investors.

And then, as we know, the Federal Reserve Chairman Powell and Treasury Secretary Yellen have strong statements about Crypto. Clearly, it's not, is it just a global issue, but it's a global concern of groups like FATF and, of course, our own government.

Elliot Berman: Yes. The other thing that was interesting in the report is looking at near term next steps.

We're likely to see updated guidance in the space, maybe by the end of the year. And again, this is a very rapidly moving area, and FATF is recognizing that, and to their credit, they have this very strong process when they implement or when they issue guidance and standards to really figure out what's happening with them globally.
I think we should watch for that. I'm sure that that they'll [FAFT] continue to do these 12 months reviews. A year from now, we'll see the next one.

John Byrne: For more information, go to the FATF-GAFI.org website. As Elliot mentioned, it's the second 12-month review of the revised FATF standards on virtual assets and virtual assets service providers and the second of a number of reviews.

To listen to us each week, you can go on iTunes [or Spotify] and subscribe. We try to give you a quick snapshot of an important element during the week, and we appreciate everybody.

Elliot Berman: You have a really good weekend and stay safe. I'll talk to you next week.

John Byrne: Alright, go bucks. Bye.

Elliot Berman: Bye.