FATF

FATF agrees on roadmap for implementation of crypto standards

Part of the FATF’s “Travel Rule” includes recommendations that financial institutions obtain information on the originators and beneficiaries of certain crypto transactions.

The Financial Action Task Force, or FATF, has reported that its delegates have come to an agreement on an action plan “to drive timely global implementation” of global standards on cryptocurrencies.

In a Feb. 24 publication, the FATF says the plenary for the financial watchdog — consisting of delegates from more than 200 jurisdictions — met in Paris and reached a consensus on a roadmap aimed at strengthening the “implementation of FATF Standards on virtual assets and virtual asset service providers.” The task force says that in 2024, it will report on how FATF members have moved forward on implementing the crypto standards, including regulation and supervision of VASPs.

“The lack of regulation of virtual assets in many countries creates opportunities that criminals and terrorist financiers exploit,” says the report. “Since the FATF strengthened its Recommendation 15 in October 2018 to address virtual assets and virtual asset service providers, many countries have failed to implement these revised requirements, including the ‘travel rule’ which requires obtaining, holding and transmitting originator and beneficiary information relating to virtual assets transactions.”

Part of the FATF’s “Travel Rule” includes recommendations that VASPs, financial institutions and regulated entities in member jurisdictions obtain information on the originators and beneficiaries of certain digital currency transactions. As of April 2022, the financial watchdog reported that many countries were not in compliance with its Combating the Financing of Terrorism and Anti-Money Laundering standards.

Related: AML and KYC: A catalyst for mainstream crypto adoption

Japan, South Korea and Singapore have been among the countries seemingly most willing to implement regulations in accordance with the Travel Rule. Some nations, including Iran and North Korea, have reportedly been placed on the FATF’s “grey list” for monitoring suspicious financial activity.

Japan preparing amendment to enforce FATF travel rules on crypto by May 2023: Report

Meeting international Anti-Money Laundering standards is the latest in a series of measures Japan has taken in recent months to improve its cryptocurrency regulation.

Japan is expected to enact new rules on money transfers to prevent the use of crypto for money laundering, according to local news agency Nikkei. The changes will bring Japan up-to-date with Financial Action Task Force (FATF) recommendations.

An amendment to the Act on Prevention of Transfer of Criminal Proceeds will be introduced in the National Diet on Oct. 3 that will add crypto to the so-called travel rules on money transfers, Nikkei reported. The rules will be amended to require exchange operators to collect customer information in transactions involving cryptocurrency and stablecoins — as they already do for cash transactions.

The Foreign Exchange and Foreign Trade Act and the International Terrorist Asset-Freezing Act will be updated to reflect the same changes, which will go into effect in May 2023. The amendment foresees the issuance of “administrative guidance and corrective orders” to exchanges that break the new rules, with criminal penalties for violations of thecorrective orders.

The amendment will incorporate into Japanese law recommendations the FATF introduced in 2019 and updated in 2021 for virtual asset service providers. The FATF is an intergovernmental money laundering and terrorist financing watchdog. The agency has had limited success with the adoption of its Travel Rule. According to a report released in April, hardly more than half of the countries surveyed by the FATF had adequate Combating the Financing of Terrorism (CFT) and Anti-Money Laundering (AML) laws and regulations.

Related: After four years, Japan brings back its first crypto ATM

Japan has taken important steps to regulate crypto in recent months. The parliament passed a law to limit the issuance of stablecoins by non-bank institutions in June. In July, the Ministry of Economy, Trade and Industry opened a Web3 Policy Office to foster the Web3 business environment. In addition, there are reports that the Financial Services Agency, the Japanese tax authority, is considering easing the punishing capital gains rates on crypto assets after extensive outcry within the industry.

Dutch bank ING sells digital asset tool Pyctor to GMEX

GMEX has acquired ING’s Pyctor business to connect CeFi and DeFi amid the increasing demand for hybrid finance.

ING Group, a Dutch multinational banking and financial services corporation, has spun out its digital asset business Pyctor to multi-asset trading infrastructure firm GMEX.

GMEX has acquired ING’s institutional-grade digital asset custody solution Pyctor in a multi-million dollar deal, the companies said in a joint announcement on Monday.

The Pyctor offering compliments GMEX’s MultiHub service, an institutional cross-platform business launched last year with the mission to bridge the gap between centralized finance (CeFi) and decentralized finance (DeFi), GMEX CEO Hirander Misra told Cointelegraph.

Pyctor expands MultiHub with a number of digital asset-focused capabilities, including smart contract features, post-trade custodial and institutional network capabilities like the fragmentation of private keys.

Pyctor is also designed to support regulatory compliance, including a major Anti-Money Laundering framework by the Financial Action Task Force (FATF) referred to as the Travel Rule. 

“There is a market need for this type of offering built by a bank for banks, asset managers and corporate clients, which can now operate in a neutral environment for institutional participants,” Misra said. Institutions are increasingly seeking to expand their capabilities into digital assets trading and settlement in a way that is interoperable with existing CeFi systems and asset classes, the CEO added, stating:

“This calls for the need for hybrid finance, or HyFi, which delivers a hybrid digital market infrastructure solution with interoperability of multiple blockchains and API integration into traditional systems to ensure a cohesive approach.”

ING started Pyctor as a project incubated out of its innovation arm ING Labs in Amsterdam in 2018. Pyctor’s technology manages private keys by fragmenting and distributing them among blockchain nodes hosted by regulated institutions. 

ING completed Pyctor’s first proof of concept in 2019 and then formed a working group for sandbox trials, including participation from major global banks and firms like BNP Paribas, Citi, ABN AMRO, Societe Generale, Invesco, UBS, State Street, Forge and others.

Related: JPMorgan trials blockchain for collateral settlement in after-hours trading

As previously reported by Cointelegraph, ING has been working on proprietary cryptocurrency custody technology tools since at least 2019 alongside many other blockchain-related activities. In 2021, ING conducted a trial of a DeFi peer-to-peer lending protocol with the Netherlands Authority for the Financial Markets.

Reporting ‘limited progress,’ FATF urges countries to introduce legislation for travel rule

“Countries that have not introduced Travel Rule legislation should do so as soon as possible, and FATF jurisdictions should lead by example,” said the organization.

The Financial Action Task Force (FATF) reported that 11 out of 98 responding jurisdictions have started enforcing its standards on Combating the Financing of Terrorism, or CFT, and Anti-Money Laundering, or AML.

In an update released Thursday on the “Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers,” the FATF reported the “vast majority” of jurisdictions assessed by the organization’s Global Network since June 2021 “still require major or moderate improvement” in AML/CFT compliance in accordance with the Travel Rule. According to the FATF, countries moving towards implementing these requirements made “limited progress” over the last year, with 29 out of 98 responding jurisdictions reporting passing legislation related to the Travel Rule, and 11 starting enforcement.

“While around a quarter of responding jurisdictions are now in the process of passing the relevant legislation, around one-third (36 out of 98) have not yet started introducing the Travel Rule,” said the FATF. “This gap leaves VAs and VASPs vulnerable to misuse, and demonstrates the urgent need for jurisdictions to accelerate implementation and enforcement.”

The organization added that companies in the private sector had made progress in introducing solutions to support compliance with the travel rule and “taking early steps to ensure interoperability with other solutions.” However, the FATF hinted at the necessity of implementing these solutions quickly, given the “significant threat of ransomware actors misusing VAs to facilitate payments” and funneling illicit funds through Virtual Asset Service Providers, also known as VASPs.

“Countries that have not introduced Travel Rule legislation should do so as soon as possible, and FATF jurisdictions should lead by example by promoting implementation, and by sharing experiences and good practices […] Rapid implementation by jurisdictions will incentivize progress further.”

Related: President of Panama shoots down crypto bill citing FATF guidelines

Among other developments since 2021 included a rise in the growth of decentralized finance, or DeFi, and nonfungible projects, which the FATF labeled as a “challenging area for implementation” of the Travel Rule. The organization cited a Chainalysis report released in February that “suggests that threats from criminal misuse continue” with illicit transactions in DeFi, and reached similar conclusions for NFTs potentially being used for “money laundering and wash trading.”

Under FATF guidelines, VASPs operating within certain jurisdictions need to be licensed or registered. The organization reported in an April update that roughly half of the assessed jurisdictions in 120 countries had “adequate laws and regulatory structures in place” to assess risks and verify beneficial owners of companies, urging them to prioritize identifying and reporting information on cryptocurrency transactions.