Implement a risk-based approach to comply with the source of funds & transaction monitoring requirements according to FATF Virtual Assets Red Flag Indicators report for ML/TF.
Download here: https://scorechain.com/FATF-redflag-indicators-report
Cryptocurrencies and digital assets have raised many concerns for regulators over the past few years. With increasing usage and increasing business opportunities for many industries, worldwide regulators have started to include virtual assets under the scope of anti-money laundering (AML) and counter-terrorism financing (CTF) laws.
The fast evolution of virtual assets comes along with anonymity enhancement for some of them. This can attract and expand criminal activity to benefit from some anonymity to wash some money and finance some illicit activities. Besides, the rise of Anonymity Enhanced Cryptocurrencies (AECs) has been assessed and has been taken seriously in the last FATF reports since it has been identified as a new opportunity for criminals to use it for illicit activities.
That is why in 2019, the Financial Action Task Force released its guidance 1 to help countries and virtual asset providers (VASP) to understand risks, as well as the financial and reporting obligations that should follow according to the recommendations written in the guide.
The guidance has first defined some terminology and explains in what circumstances VASP fall under the scope of which recommendation. Then 40 recommendations have been listed, among which some need to be implemented at the country level, some at the VASP level. As a consequence, to be 100% compliant VASPs need to call on some third-party software such as know-your-customer and transaction monitoring tools.
In addition, recommendation 16 known as the ‘Travel Rule’ has raised many concerns regarding its implementation. It is still a work-in-progress for both states and VASPs.
The latest guide released by the FATF follows the previous FATF publications regarding definitions and Risk-Based Approach released respectively in 2014 2 and 2015 3.
Read more by downloading the guide:
1 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, https://www.fatf-gafi.org/media/fatf/documents/recommendations/RBA-VA-VASPs.pdf
2 Virtual Currencies: Key Definitions and Potential AML/CFT Risks , https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf
3 Guidance for a Risk-Based Approach to Virtual Currencies, https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf