On June 21, 2019 the Financial Action Task Force (the “FATF”), published its long-awaited Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (the “Guidance”). The FATF is tasked with setting standards and promoting effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
U.S. Treasury Secretary Steven Mnuchin noted in his remarks that the Guidance “will enable the emerging fintech sector to stay one step ahead of rogue regimes and sympathizers of illicit causes searching for avenues to raise and transfer funds without detection.” The Guidance will have far-reaching consequences for virtual currency exchanges, wallet providers, and other virtual currency companies and natural persons transmitting similar value as a business if implemented by the FATF’s participating government bodies.
The FATF currently comprises 36 member jurisdictions and 2 regional organizations, representing most major financial centers in all parts of the globe. It is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The Guidance follows and makes final the FATF’s February proposal, which applies the Transfer Rule to covered entities. In short, the Guidance states that entities transferring cryptocurrency on behalf of senders and receivers should obtain and hold required and accurate sender information and required recipient information and submit the information to beneficiary institutions. Sender information includes: (i) sender’s name; (ii) sender’s account number (i.e. sender’s wallet); (iii) sender’s physical address, or national identity number, or customer identification number (i.e., not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth; (iv) beneficiary’s name; and (v) beneficiary account number where such an account is used to process the transaction (e.g., the virtual currency wallet).
The FATF will monitor the progress made by participating governments over the 12 months and establish a Contact Group to serve as a point of contact for the industry in their efforts to comply with the Guidance. In addition, the FATF will monitor implementation of the Guidance’s requirements by participating governments and covered entities, including a 12-month review in June 2020.
While not binding, the Guidance will likely be adopted by participating governments, as noncompliance brings with it negative market consequences. Virtual currency exchanges and market participants covered by the Guidance should evaluate their existing Money Services Business compliance programs in anticipation of the enhanced requirements that will require additional disclosures, as described above.