FATFs new virtual asset service provider standards: an important rst step
In its 30th year, the FinancialAction Task Force (FATF) adopted new standards to address
the growing integrity risks posed by virtual assets.The set of virtual asset service provider
(VASP) standards, complemented by an extensive guidance note on a risk-based approach
to VASPs and virtual assets[1], is an important milestonein the regulation of this new type
of asset.
Crypto assets such as Bitcoin and the distributed ledger technology underpinning them
have captured the imagination of those who wish to disrupt traditional nancial services.
These assets and technologies have also secured signicant investments. Determining the
best approach to ensure that their potentialcan be harnessed while mitigating the risks they
pose has proved challenging. National regulators opted for different approaches ranging
from outright banning to adopting a wait-and-see approach. The challenges evenextend to
classifying the nature of these assets. While those such as Bitcoin and Ethereum are
generally known as crypto-currencies, many regulators increasingly prefer to classify
them simply as crypto or virtual asset, arguing, among others,that they fail to display price
stability and trust associatedwith money and currency[2].
The steps taken by FATF, the rst international nancial standard-setter to adopt
specic standards in relation to these new assets, are welcomed, as they constitute an
important rst step towards a global regulatory virtual asset approach. This, in turn, may
provide a much rmer basis for trust in and usage of these assets. Trust has been
undermined by the signicant scandals involvingvirtual assets. These include the hacking
of and theft from exchanges such as Mt. Gox and Coincheck,money launderers and terrorist
nanciers abusing lax customer due diligence controls and frauds involving initial coin
offerings, a largely unregulatedmeans of raising funds for a new project by selling crypto-
currencycoinsor tokens to investors[3].
While FATFs interest in these assets reach back to its 2014 guidance on virtual
currencies, the new standards were triggeredby the G20s concern about the rising levels of
criminal abuse of virtual assets. In July 2018, they requested FATF to clarify how its
standards apply to these assets[4].
In response, FATF launched a work stream focused on virtual assets, dened, for their
purposes, as a digital representation of value that can be digitally traded, or transferred,
and can be used for payment or investment purposes. Virtual assets do not include digital
representations of at currencies, securities and other nancial assets that are already
covered elsewhere in the FATF Recommendations. This denition includes, but is not
conned to, so-calledcrypto currencies.
The new VASP standards wereadopted to ensure that providers of virtual asset services
are subject to anti-money laundering and combating of nancing of terrorism (AML/CFT)
measures equivalent to those applying to money or value transfer services. The standards,
set out in Recommendation 15 and detailed in its interpretative note, require countries to
ensure that VASPs are regulated for AML/CFTpurposes, licensed or registered and subject
to effective systems for monitoringand ensuring compliance with the measures called for in
the FATF standards. The requirementsinclude the following:
identifying, assessing and mitigating the risks posed by virtual asset activities and
VASPs, implementing a proportional, risk-based approach;
Journalof Financial Crime
Vol.27 No. 2, 2020
pp. 309-312
© Emerald Publishing Limited
DOI 10.1108/JFC-04-2020-172

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