FATF’s 12 Months Review Since Travel Rule

The 26 page report detailed the FATF's policy popularly called Travel Rule in three key areas

By · Jul 15, 2020 . 10min read

One year after FATF travel rule, the task force reviews its achievement and how well the new policy has fared among participating entities.

In a recent report released on 7 July 2020, on its website, FATF reviewed its progress on the policy it released exactly 12 months ago. The 26-page report detailed the taskforce’s policy popularly called Travel Rule in three key areas:

  • Emerging market trends and money laundering risks
  • Public sector implementation and enforcement of the revised Standards
  • Private sector development and adoption of a Travel Rule compliance mechanism.

FATF expressed its overall satisfaction with both the public and private sectors. This is in their commitment towards ensuring full compliance in the use of virtual assets and Virtual Asset Providers (VASPs).

Emerging market trends and money laundering risks

On the three areas earlier listed in the review, for marketing trends and money laundering risks, FATF acknowledged that the volume of criminal activities remained low. However, crimes such as narcotics-related crime and fraud such as investment scams, blackmail, and extortion still find virtual assets as veritable tools for perpetuation.

It called out VASPs operating in unregulated jurisdictions and their unrelenting efforts at supporting transactions with privacy coins. The report shows professional money laundering networks have developed interests in virtual assets that enhance anonymity and their cross border nature. This is especially noticeable in privacy coins which are anonymizing cryptocurrencies. Critically, it expressed concerns for “VASPs failing to implement adequate controls to mitigate risks involved with anonymity-enhanced virtual assets.”

Public sector implementation and enforcement of the revised Standards

The report shows the public sector is leading the charge in ensuring the new FATF standard is adhered to within its jurisdiction. CipherTrace, a cryptocurrency intelligence firm which reports on crime and other virtual assets related offences published an infographic detailing how the public sector fares in FATF’s travel rule implementation.

45 Jurisdictions Have Already Developed AML/CFT Regulations for VASPs
Source: https://ciphertrace.com/

As the report further shows, there’s a growing concern for decentralized exchanges (DEXes) which is on a positive growth trajectory. Because most of the DEX are unregulated, this has prompted a need for further guidance to determine the extent of AML/CFT requirements for VASPs within their respective jurisdictions.

Private sector development and adoption of a Travel Rule compliance mechanism

As for private sector compliance in following the travel rule, the report shows there has been progress in the development of technical standards for use by different travel rule solutions.

FATF acknowledges the existence of an industry-wide initiative that has been established to set global technical standards for travel rule solutions to use. Also, it lauded VASPs who are taking steps to develop travel rule technologies and implementing into their systems. Although many VASPs are not the developers of some of the travel rule technologies, they are ready to implement. This especially falls in line with the ethos of decentralization where no single entity controls everything.

Still, in this section, CipherTrace recommends industry collaboration among players as they test out open-source initiatives.

Recommeded risk-mitigating steps virtual assets and VASPs

The report reviewed stablecoin usage and transaction volume. It states that there is presently the lack of private and public sector AML/CFT infrastructure for stablecoins.

In line with this, it recommended possible steps to address these concerns. They include:

  • transaction or volume limits on peer-to-peer transactions
  • requiring transactions utilize an intermediary VASP or financial institution,
  • or the most severe—banning or denying the use of unhosted wallet transfers.

FATF now has a new German President who has some new plans

Xiangmin Liu of China, the current president as at when the report was released will be handing over to Marcus Pleyer of Germany. As the new president, Pleyer has some new plans which he laid out in a five-point plan:

  • Digital Transformation of AML/CFT
  • Financing of ethnically or racially motivated terrorism
  • Money laundering and migrant smuggling
  • Environmental crime
  • Illicit arms trafficking

In conclusion, Pleyer will be serving under his new role for a two-year term. This is unlike past presidents who served a one year tenure.