FATF Set Global AML Standards for Crypto Service Providers

The Financial Action Task Force adopted and issued an Interpretive Note to Recommendation 15 on June 21, 2019, establishing a global anti-money-laundering framework for virtual assets and the businesses handling them.

The action placed exchanges, custodial wallet providers and other covered intermediaries within regulatory expectations resembling those applied to conventional financial institutions. Countries were expected to assess virtual-asset risks, require relevant service providers to be licensed or registered, supervise them through competent public authorities and maintain sanctions for noncompliance.

The development mattered because FATF’s standards influence national legislation, supervision and access to regulated financial infrastructure across its international network. FATF did not enact a single worldwide cryptocurrency law on June 21, however. Each jurisdiction still had to translate the standards into its domestic legal and regulatory system.

A global compliance perimeter

FATF had amended Recommendation 15 and added definitions for “virtual asset” and “virtual asset service provider” in October 2018. The June 21 Interpretive Note supplied more detailed requirements for applying that framework.

Covered providers were expected to identify, assess and mitigate money-laundering and terrorist-financing risks. The applicable preventive measures included customer due diligence, recordkeeping, suspicious-transaction reporting and screening for targeted financial sanctions. FATF also said countries could prohibit virtual-asset activities according to their risk assessments and policy objectives.

Supervision could not be left exclusively to an industry self-regulatory organization. FATF called for monitoring by competent national authorities with powers to impose effective sanctions, including restrictions affecting a provider’s licence or registration.

These requirements did not mean every cryptocurrency business became licensed on June 21. Nor did adoption establish that every country already possessed implementing legislation. The event created an international standard and an evaluation benchmark; operational effect depended on subsequent national action.

Transfer data became the central challenge

The most technically consequential provision applied Recommendation 16’s transfer-information requirements to virtual-asset transfers. Originating providers were expected to obtain and retain required, accurate information about the originator and required information about the beneficiary. They were also expected to submit that information immediately and securely to the beneficiary provider or other covered counterparty when one existed.

Beneficiary providers were correspondingly expected to obtain and retain required originator information and required, accurate beneficiary information. Both sides had to make the information available to appropriate authorities upon request.

FATF specified that the identifying data did not have to be embedded directly in the blockchain transaction. That distinction allowed development of separate communications systems, but it did not resolve how unrelated providers would identify one another, exchange information securely and comply across jurisdictions with different privacy and data-protection rules.

U.S. Treasury Secretary Steven Mnuchin emphasized the institutional direction at the Orlando plenary on June 21. His official remarks said virtual-asset providers would need processes for identifying senders and recipients, sharing information with other providers and law enforcement, conducting customer due diligence and operating risk-based compliance programs.

What was settled—and what was not

FATF also published accompanying risk-based guidance on June 21 and announced that it would monitor implementation before conducting a 12-month review in June 2020. That review schedule acknowledged the distance between adopting a standard and achieving consistent technical and legal implementation.

The defensible event-day conclusion is therefore institutional rather than technological: a leading international standard setter had placed covered crypto intermediaries inside a coordinated anti-financial-crime framework. The standards defined the destination, but they did not prove that interoperable transfer-information infrastructure existed on June 21, 2019.

No cryptocurrency price, return, volume or market-capitalization claim is made because the cited regulatory records do not establish a defined market reaction or causal measurement window.