FATF Publishes 2024 Targeted Update
The Financial Action Task Force (FATF) published its fifth Targeted Update on Implementation of the FATF Standards on VAs and VASPs (Update) providing a review of implementation of the standards including the Travel Rule and an update on emerging risks and market developments.
One of the most important takeaways for VASPs is that some key issues remain with Travel Rule compliance tools.
The FATF posed additional questions to the Guiding Questions and Considerations for Travel Rule compliance tool providers (Questions), which was first published in the 2023 Update.
VerifyVASP successfully completed an independent audit of its responses to the 2023 Questions, demonstrating full compliance to the FATF requirements. We have complemented these responses to include the additional questions posed in the Update and summarised them below:
Summarising the remaining key points of the Update:
- Jurisdictions continue to struggle with regulating the VA industry, and although there are more respondents to the FATF survey, assessment results suggest that the proportions of compliant jurisdictions remain largely unchanged
- Some VASPs have been leveraging regulatory arbitrage by operating without physical presence in jurisdictions (referred to as offshore VASPs). These offshore VASPs have also been observed to switch locations in order to circumvent regulatory requirements of other jurisdictions
- Insufficient progress on implementation of Travel Rule, summarised in the chart below
- Substantial outstanding gaps such as (a) low quality data leading to ineffective screening and STR, (b) delayed transmission, © not covering certain VA and (d) failure to implement Travel Rule by required date or with certain counterparty VASPs
- VA, in particular stablecoins are increasingly used by terrorist groups and target of hacks
The Update then makes specific recommendations for the Public Sector:
- Perform money laundering terrorist financing risk assessments on the industry and implement risk mitigating measures
- Develop and implement a jurisdictional approach or (a) permitting, (b) partially or explicitly banning VA and accordingly regulate, supervise and enforce
- Require licensing or registration where VA is not banned, conducting supervisory inspections and taking appropriate enforcement or supervisory actions
- Urgently introduce Travel Rule legislation/regulation if not already, and rapidly operationalise it
- Maintain public information on VASPs to facilitate counterparty due diligence (DD) in line with Travel Rule (R.16) and correspondent banking services (R.13)
- Enhance knowledge of Travel Rule compliance tools and ensure these tools meet all the FATF requirements
- Access and monitor market, illicit activity associated with stablecoins, DeFi and unhosted wallets (or P2P transactions)
The Update distinguishes between mandatory VASP counterparty DD in R.16 and the obligations applicable to R.13 (cross-border correspondent relationships). The objective of counterparty DD in the context of R.16 is to ensure the counterparty’s (a) Travel Rule obligations and (b) ability to protect sensitive information.
VerifyVASP’s processes around VASP counterparty DD cover both the requirements set forth in R.13 and R.16 compliance in this Update. This has greatly alleviated the challenges highlighted by other participants in the FATF Virtual Asset Contact Group (VACG) forum.
Finally, the Update reminds the industry of the proposed revisions to R.16 and its potential implications to the industry, in particular the uplift in information required and alignment to ISO20022.
VerifyVASP can help you fully comply with the FATF’s Travel Rule requirements. Contact us on corporate@verifyvasp.com if you have any questions or want to discuss this Update in detail.
