Virtual Assets: Targeted Update on Implementation of the FATF Standards on VAs and VASPs

The FATF has extended its AML/CFT measures to include VAs and VASPs in order to prevent criminal and terrorist misuse of this sector. However, a recent report by FATF reveals that many jurisdictions are struggling with the implementation of FATF’s standards on VAs and VASPs.
The report highlights that 75% of jurisdictions, based on 98 FATF mutual evaluation and follow-up reports, are only partially or not compliant with FATF’s requirements. Some of the key areas where jurisdictions have shown insufficient progress include conducting a risk assessment, enacting legislation to regulate VASPs, and conducting supervisory inspections. Additionally, more than half of the 151 jurisdictions surveyed in 2023 have not taken any steps to implement the Travel Rule, which is a crucial AML/CFT measure. This lack of progress is concerning, as it exposes significant loopholes for criminals to exploit, thereby increasing the risks associated with VAs and VASPs.
The report also acknowledges the collaborative efforts among private sector members to enhance compliance with FATF’s standards, particularly with regard to the Travel Rule. It emphasizes the importance of all stakeholders implementing appropriate risk identification and mitigation measures to achieve full compliance with the Travel Rule.
While DeFi, P2P transactions, NFTs, unhosted wallets, and stablecoins do not currently constitute a significant proportion of transactions, they are still susceptible to misuse, including by sanctioned actors. Therefore, FATF will continue to monitor the illicit financing risks and developments in this sector.
FATF calls on all countries to swiftly implement its standards on VAs and VASPs, including the Travel Rule. In February 2023, FATF adopted a roadmap to enhance the implementation of Recommendation 15 (R.15). FATF and its VACG will continue conducting outreach and providing assistance to low-capacity jurisdictions to encourage compliance with R.15.
In the first half of 2024, FATF plans to publish a table showcasing the progress made by member jurisdictions and other jurisdictions with significant VASP activities in implementing R.15. The FATF and VACG will also continue sharing findings, experiences, and challenges, particularly related to DeFi, unhosted wallets, and P2P transactions, and monitoring market trends to identify any developments that may require further attention from FATF.