REGULATORS SET STAGE FOR DEBATE ON VIRTUAL ASSET COMPLIANCE AT V20 SUMMIT
FOR IMMEDIATE RELEASE
[PARIS, 17 November 2020] Ahead of the G20 Summit in Riyadh, Saudi Arabia, the V20 Summit opened yesterday with regulators from the Financial Crimes Enforcement Network (FinCEN), Monetary Authority of Singapore (MAS), Japanese Financial Services Agency (FSA), Bermuda Monetary Authority (BMA), and Abu Dhabi Global Market (ADGM) discussing the policies they have implemented within their jurisdiction to comply with the FATF Recommendations, most notably the so-called Travel Rule.
In an opening keynote, FATF Executive Secretary and G20 Deputy, David Lewis, said the Travel Rule is not yet being implemented globally or effectively. Lewis confirmed that 25 of FATF’s 39 member countries have transposed the revised global standards into their domestic legislative frameworks.
“We need a global response by all jurisdictions. VASPs can move quickly between jurisdictions and the FATF will not tolerate jurisdictions leaving loopholes for regulatory arbitrage that criminals can exploit,” said Lewis. “In terms of the private sector, our [12-Month] Review found that implementation by service providers remains relatively nascent. Many businesses do not have a history of regulatory oversight and they are unfamiliar with the risks and requirements,” he said.
“However, the private sector has made progress in developing technological solutions for the so-called Travel Rule,” said Lewis. “Since June 2019, we have seen the development of technical standards, protocols and technological solutions from a range of different organisations and alliances,” he said.
“The creation and adoption of IVMS 101 is a really important step,” said Sandra Garcia, Director of National Security, Threats and Trends, Office of Terrorist Financial and Financial Crimes, U.S. Department of Treasury and Co-Chair, Virtual Asset Contact Group, FATF, referring to a data model developed by the Joint Working Group for interVASP Messaging Standards (JWG) to enable a universal common language for communication of required originator and beneficiary information between VASPs. The JWG and resultant IVMS 101 standard were both outcomes of the inaugural V20 Summit in 2019.
Garcia also highlighted how the discussion between FATF and industry had shifted over the past year. Initially, the FATF was focused on explaining its recommendations and requirements to industry. One year later, industry is spearheading the discussion on implementation and technical developments.
“That’s a tremendous sign of the open dialogue that the FATF has had with this sector, as well as the national regulators being a lot more open and inviting to have discussions,” said Garcia.
In describing “what’s next” for FATF, Garcia said the priority is to increase implementation of the FATF Recommendations by committing to update the 2019 Guidance for a Risk-Based Approach to Virtual Assets by the next FATF review due June 2021. This would include further information on Travel Rule requirements, mitigating the risk associated with P2P transactions and the FATF’s position on stablecoins.
“Without countries adopting and transposing into their laws and regulations the revised FATF standards, we will only be as strong as our weakest link,” she said.
On private sector engagement, Garcia recognised that the FATF still needs to better understand the extent to which virtual transactions occur on a peer-to-peer basis versus those that involve a VASP.
“We have seen some players try to claim that they're only engaged in activities that fall outside the definition of a VASP and I think you will see that the FATF will reiterate and clearly provide examples of what is covered activity requiring licensing and registration and the full AML/CFT obligations,” she said, adding that compliance should be built-in at development stage, not bolt-on after proof of concept or product launch. “This week will be really important to help our thinking on how to come together with solutions that make sense on how to mitigate that risk,” she said.
A poll of the audience, which included VASPs, technical solution providers, national blockchain associations, government officials and academics, showed that 52% of respondents believed that since it was adopted by the G20 Finance Ministers in 2019, the Travel Rule had delivered a “somewhat positive” impact on growth and innovation in the virtual asset sector. In a separate poll, 42% of respondents said that the current regulatory approach within their jurisdiction was “somewhat open to industry industry input and collaboration,” while another 31% said greater regulatory clarity was needed.
“Regulators should be humble about what we know about this sector, due to the early stage of the sector and the complexity of the technology,” said Takahide Habuchi, Assistant Commissioner, International Affairs Office, FSA, and Co-Chair, Virtual Asset Contact Group, FATF. He said the FATF and regulators agree that close communication and continuous dialogue with industry is critical to ensure that the FATF can design global standards that are effective and work in practice.
WHAT TO EXPECT: DAY TWO, V20 SUMMIT
Today’s proceedings are closed to the media, regulators and FATF. This industry-only discussion forum is designed to allow industry peers to privately deliberate between themselves in response to the regulators concerns with the goal to arrive at a common perspective on an approach to effective and balanced regulation that adequately mitigates risk while promoting industry growth and innovation.
WHAT TO EXPECT: DAY THREE, V20 SUMMIT
With all parties reconvened together, the moderators from Day Two will feedback to regulators and the FATF on key takeaways from the private industry-only discussions and discuss next steps.
IVMS 101 RE-OPENING PLENARY
Following the conclusion of the V20 Summit, a re-opening plenary for the JWG will take place to consider issues raised with IVMS 101, proposals for revisions, proposals for further standards, and a schedule for future meetings. Further information can be found at: https://intervasp.org.
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