July 21, 2019

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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. 

Copyright 2019 K & L Gates

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About this Author

Associate

Jeremy McLaughlin is an associate in the firm’s San Francisco office and a member of the Consumer Financial Service group. His practice focuses principally on regulatory compliance and government enforcement for Fintech and consumer financial products and services, with particular attention on emerging payments and compliance with state and federal consumer protection laws, state money transmitter licensing laws, and international remittances, as well as advising on privacy, data security, and PCI compliance. He represents and advises financial technology companies,...

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Judith E. Rinearson, KL Gates, federal consumer protection lawyer, anti money laundering attorney
Partner

Judith Rinearson is a partner in the firm’s New York and London offices. Ms. Rinearson concentrates her practice in prepaid and emerging payment systems, electronic payments, crypto/virtual currencies, reward programs, ACH and check processing. She has more than 25 years of experience in the financial services industry, including 18 years at American Express’s General Counsel’s Office. Her expertise focuses particularly in the areas of emerging payments and compliance with state and federal consumer protection laws, anti-money laundering laws, state money transmitter licensing laws and abandoned property laws. 

Fully experienced in both the “issuing” and “acquiring” side of the payments business, Ms. Rinearson has drafted and negotiated complex agreements with strategic co-branded partners, processors and Independent Sales Organizations (ISOs), ATM networks, major retailers and service providers, prepaid card issuers and program managers, international remittance companies, virtual and mobile payment providers, as well as the Terms and Conditions and disclosures that usually accompany such products. She has hands-on experience in all legal aspects of launching and managing a range of payment products, from prepaid cards of all kinds, to Bitcoin exchanges and miners, wire transfer services, ACH, electronic banking, money orders and credit cards. Her practice includes advising on fraud avoidance and compliance with federal banking and anti-money laundering laws, as well as state money transmitter licensing laws, consumer protection laws and abandoned property laws. On the international level, Ms. Rinearson has supervised the launch of a range of payment and foreign currency products in Europe, Asia and Latin America; met with international regulators; and spoken on the issue of payment regulation. 

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