The Banking Executive Magazine - June 2022 Issue

Digital Currency ternational standards that aim to pre- vent these illegal activities and the harm they cause to society. As a pol- icy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. With more than 200 countries and jurisdictions committed to imple- menting them. The FATF has devel- oped the FATF Recommendations, or FATF Standards, which ensure a co- ordinated global response to prevent organised crime, corruption and ter- rorism. They help authorities in trac- ing the money of criminals dealing in illegal drugs, human trafficking and other crimes. The FATF also works to stop funding for weapons of mass destruction. The FATF reviews money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of virtual assets, which have spread as cryptocurren- cies gain popularity. The FATF mon- itors countries to ensure they implement the FATF Standards fully and effectively, and hold account countries that do not comply. Published in June 2019, FATF’s Inter- pretive Note to Recommendation 15 on New Technologies (INR.15) clari- fies the FATF’s previous amendments to the international standards related to virtual assets. It also describes how countries and obliged entities must comply with the relevant FATF Rec- ommendations to prevent the misuse of virtual assets for ML/TF as well as the financing of proliferation. FATF published the ‘Guidance for a Risk- Based Approach to Virtual Assets and Virtual Asset Service Providers’, to support providers of virtual asset products and services in understand- ing and complying with their anti- money laundering/counter-terrorist financing (AML/CTF) obligations. The new FATF Recommendations aim for effective regulation of virtual exchanges, the crucial interface be- tween the sphere of virtual curren- cies and fiat currencies. Therefore, AML/CTF standards that apply to tra- ditional financial transactions also cover blockchain-based financial services. Ultimately, the plan is to put an end to anonymous virtual transac- tions. The wire transfer rule, also called the ‘Travel Rule’, requires states to take precautions to ensure that virtual asset service providers (VASPs) monitor and share customer data among themselves and with the relevant government authorities. Regulation in European Union In the European Union EU, the adop- tion of the new FATF Recommenda- tions coincided with the need to implement the latest EU anti-money laundering directive (AMLD), the Fifth AML Directive (5AMLD), which extends AML/CTF rules to virtual cur- rencies, and aims to cover all the po- tential uses of virtual currencies. The rules will now apply to entities that oversee the holding, storing and transferring of virtual currencies. These new actors will have to iden- tify their customers and report any suspicious activity to their local fi- nancial intelligence unit (FIU). The AMLD recognises that the inclu- sion of providers engaged in ex- change services between virtual currencies and fiat currencies, as well as custodian wallet providers, will not entirely address the issue of anonymity attached to virtual cur- rency transactions. A large part of the virtual currency environment will re- main anonymous because users can also transact without such providers. To combat the risks related to anonymity, national financial intelli- gence units FIUs should be able to obtain information allowing them to link virtual currency addresses to the identity of the owner of a virtual cur- rency. The EU is also developing the Virtual Assets Due Diligence New Toolbox. To mitigate the risk attached to vir- tual currencies and Virtual Assets Service Providers VASPs, the EU’s draft ‘Risk Factors Guidelines’ note that simplified due diligence meas- ures are not sufficient. The draft also provides minimum steps that should be part of any Customer Due Dili- gence CDD procedure: • Begin the dialogue with the cus- tomer to understand the nature of the business and the ML/TF risks it poses. • Carry out due diligence on senior management to the extent that they are different, including considera- tion of any adverse information. • Understand the extent to which these customers apply their own customer due diligence (CDD) measures to their clients either under a legal obligation or on a voluntary basis. the BANKING EXECUTIVE 14 ISSUE 162 JUNE 2022