New FATF Guidance Will Significantly Impact the Crypto Industry
The Financial Action Task Force (“FATF”), an intergovernmental organization aimed at combatting money laundering and thwarting terrorist financing, recently issued final recommendations for the regulation of cryptocurrencies. Although the recommendations are not binding on members–it will be up to each of FATF’s 37 member countries to determine whether to enact the recommendations through legislation or regulation–it is expected that they will have widespread adoption and significant implications for the cryptocurrency industry.
Probably the most significant recommendation would subject virtual asset service providers (“VASPs”), including cryptocurrency exchanges, to something akin to the “travel rule” that currently applies to banks. It would require VASPs to provide each other with information about their customers for each transfer of crypto. Specifically, VASPs would need to collect and share the name of the sender and recipient, the account number (i.e., wallet address) of both the sender and recipient, and other identifying information about the sender. The recommendations also have detailed provisions relating to licensing. For example, they indicate that individuals who use crypto wallets may be subject to licensing in certain instances, and provide countries with the option of requiring foreign VASPs to obtain licenses. Many of these recommendations have drawn ire from the industry leaders who have suggested that FATF has gone “too far,” and that, if adopted, the new regulations could be an innovation killer.
We are developing a detailed analysis of the recommendations, but a few key issues are worth immediate note:
The guidance gives member states 12 months to implement its recommendations. The ensuing 12 months will undoubtedly see a large, globally-based, process of negotiation and dialogue with local regulators on what the final laws/regulations will require. Your K&L fintech and blockchain lawyers expect to help many clients and industry groups liaise with regulators as these events unfold. Please reach out to your contacts for additional information about the recommendations and a more detailed analysis of their possible implications.