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It’s been a long time coming, but the Financial Action Task Force (FATF) has said it will release updated guidance on virtual asset service providers (VASPs) on Thursday.

The international body, which develops policies to combat money laundering, first published guidance on virtual assets and VASPs in June 2019. It then committed to updating that guidance in July 2020 and released a draft in March.

In a meeting last week, FATF President Marcus Pleyer said that finalized guidance will provide more details for the definition of virtual assets and VASPs. It will also touch on decentralized finance (DeFi), non-fungible tokens (NFTs) and stablecoins.

Pleyer added that the anti-money laundering (AML) body expects countries to begin applying the Travel Rule to cryptocurrency transactions.

The FATF travel rule, the unofficial name for FATF Recommendation #16, requires banks to collect and share personal information about the participants for transactions exceeding $1,000. It was updated to apply to VASPs that perform transfers between users in 2019.

FATF doesn’t directly assess individual firms or have any real enforcement power. Rather, the AML body looks at the monitoring activities of a country’s financial regulators. If countries aren’t doing enough to prevent money laundering, they land on the FATF grey list.

This recently happened to Turkey, Mali and Jordan. Being on the list often slows the flow of capital into a country. It can take years to satisfy the requirements to be removed from the list, said Megan Prendergast Millard, senior managing director of financial and regulatory compliance at Guidepost Solutions.

“[FATF] will have to go out to the country and they do a lot of on-site visits. It's really challenging to get off that list,” she said. “So I think individual cryptocurrency companies need to look at what the FATF guidance is because if the regulator in that country is not doing what FATF believes they should, there are going to be some changes to the regulations and soon.”

Before joining Guidepost, Prendergast Millard spent 15 years at the New York State Department of Financial Services, first as an assistant in the general counsel’s office and later in enforcement. Now, at Guidepost, she often walks banks through how to screen cryptocurrency exchanges.

“If the bank is going to work with exchanges, they really need to have a thorough onboarding and due diligence questionnaire,” she said. “You know, obviously, the first question is, are you regulated? Who are you regulated by? But banks really need to perform a deeper dive to ask what coins do you accept on your exchange. Ask for policies and procedures before you make that final decision. Find out a lot about the exchange’s [Virtual Financial Assets], AML and [Office of Foreign Assets Control] compliance program.”

There’s been a lot of anticipation around how FATF will categorize different DeFi technologies, like P2P payments, staking, autonomous software and unhosted wallets.

Vincent Gaudel, a financial crime compliance expert at LexisNexis Risk Solutions, told Crypto Investor he thinks some of these DeFi technologies have raised major red flags at FATF – even if they haven’t directly said as much.

“When the final version [of the guidance] is out, look for how many times they use the word ‘prohibited.’ FATF doesn't like to use that word. They always emphasize the risk-based approach – account for the risk and based on that make your decision,” Gaudel said. “But in the version they released in March, they did employ the term ‘prohibited’ or ‘prohibitions’ in relation to un-hosted wallets. And that's really kind of how you can tell they have a huge concern about them.”

Eddie Ponce, chief compliance officer at CoinMe, said he considers the FATF guidance on VASPs a rite of passage for the crypto industry.

CoinMe recently partnered with Coinstar to roll out a cash-to-Bitcoin pilot program at kiosks in 200 different Walmart stores. Keeping the startup compliant and adaptable has been a major focus since Ponce joined the team last June.

“To date, many key regulators (like the Office of Foreign Asset Control, the Monetary Authority of Singapore or the New York Department of Financial Services) have plunged into the fray, establishing critical guidance on how virtual asset service providers (VASPs) must operate. The FATF is a vital organization local regulators turn to as part of this effort,” he told Crypto Investor in an email. “In the same spirit, from an industry perspective, we are most looking forward to what guidance the FATF provides surrounding what we know today as the "travel rule." We also anticipate further clarity surrounding know your customer (KYC) requirements applicable to VASPs. While there is no guarantee that any regulatory body will adopt FATF's guidance fully, it is most definitely influential and will profoundly impact the industry.”

It’s been a long time coming, but the Financial Action Task Force (FATF) has said it will release updated guidance on virtual asset service providers (VASPs) on Thursday.

The international body, which develops policies to combat money laundering, first published guidance on virtual assets and VASPs in June 2019. It then committed to updating that guidance in July 2020 and released a draft in March.

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