FATF Advisories and Guidance

March 25, 2021

Disclaimer: The contents of this article are intended to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice, and should not be relied on as such.

 

Keep on top of the latest advisories and guidances from the FATF. This blog will be updated with any new information from the regulator as it becomes available.

 

Mar 19, 2021 – VA/VASP Guidance

FATF is updating its Guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs) and is consulting private sector stakeholders before finalizing the revisions. The revised document addresses six main areas and provides:

  1. Clarification on the definitions of VAs and VASPs and FATF’s position on relevant financial assets
  2. Guidance on how the FATF Standards apply to stablecoins
  3. Additional guidance on the risks and potential risk mitigants for peer-to-peer transactions
  4. Updated guidance on the licensing and registration of VASPs
  5. Additional guidance on the implementation of the ‘travel rule’
  6. Information on the Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.

Before finalizing the revisions to the Guidance, FATF is welcoming feedback on specific areas of focus and the proposed revisions to the text of the Guidance. Responses should be emailed to FATF by 20 April 2021 (18:00 UTC).

Read about FATF’s proposed changes, areas of focus and how to submit your revisions, as well as, an in-depth analysis from CipherTrace on what these proposed changes may mean to the industry.

 

Mar 4, 2021 – Risk-Based Approach to AML/CFT Supervision

To help go beyond a tick-box approach to curb money laundering and terrorist financing, FATF has released a new document called Guidance for a Risk-Based Approach Guidance to Supervision. This publication is designed to help supervisors address the full spectrum of risks and focus resources where the risks are highest. The guidance is composed of three parts:

  • Part 1 explains how supervisors should assess the risks their supervised sectors face and prioritize their activities, in line with the FATF Standards’ risk-based approach.
  • Part 2 provides strategies to address common challenges in risk-based supervision & jurisdictional examples, including examples of strategies for supervising non-financial businesses and professions and virtual asset service providers.
  • Part 3 lists country examples of supervision of the financial sector, virtual asset service providers and other private sector entities.

Download Guidance for a Risk-Based Approach Guidance to Supervision.

 

Feb 25, 2021 – Jurisdictions under Increased Monitoring

In October 2020, the FATF decided to recommence its work to identify new countries with strategic AML/CFT deficiencies and to prioritize the review of listed countries with expired or expiring deadlines.

Albania, Botswana, Cambodia, Ghana, Mauritius, Myanmar, Nicaragua, Pakistan, Panama, Uganda and Zimbabwe had their progress reviewed and their updated statements can be found here. Barbados and Jamaica chose to defer reporting hence the statements issued in February 2020 may not reflect the current status of their AML/CFT regime. Burkina Faso, the Cayman Islands, Morocco, and Senegal are recent additions to the list and information about their AML/CFT regime is available here.

 

Feb 16, 2021 – Follow-up Report for Denmark

Denmark reported back to the FATF on the action it has taken since its last follow-up report, in November 2019. Consequently, to reflect the country’s progress, the FATF has now re-rated the country on the following Recommendations:

6 – Targeted financial sanctions – terrorism & terrorist financing, from partially compliant to largely compliant
7 – Targeted financial sanctions – proliferation, from partially compliant to largely compliant
8 – Non-profit organizations, from partially compliant to largely compliant
15 – New Technologies, partially compliant
25 – Transparency & Beneficial ownership of legal arrangements, from partially compliant to largely compliant
26 – Regulation and supervision of financial institutions, from partially compliant to largely compliant

Read Denmark’s 2021 report.

 

Dec 09, 2020 – Trade-Based Money Laundering Report

A new FATF-Egmont Group report is now available to help the public and private sector with the challenges of detecting trade-based money laundering (TBML). This 66-page document explains the ways in which criminals exploit trade transactions to move money, rather than goods, as well as, TBML risks and trends, and measures and best practices to counteract trade-based money laundering.

Read the full report.

 

Sept. 14, 2020 – Virtual Assets Red Flags

The FATF has identified red flag indicators to help detect whether virtual assets  (VAs) are being used for criminal activity. VAs and related services have the potential to spur financial innovation and efficiency, but their distinct features also create new opportunities for criminals.

The ability to transact across borders rapidly not only allows criminals to acquire, move, and store assets digitally often outside the regulated financial system, but also to obfuscate the origin or destination of the funds and make it harder for reporting entities to identify suspicious activity in a timely manner. These factors add hurdles to the detection and investigation of criminal activity by national authorities.

These indicators are based on more than 100 case studies collected by members and include red flag indicators related to transactions, transaction patterns, anonymity, senders or recipients, source of funds or wealth and geographical risks.

Here are examples from the publication of red flags related to transactions:

  • Structuring VA transactions (e.g. exchange or transfer) in small amounts, or in amounts under record-keeping or reporting thresholds, similar to structuring cash transactions.
  • Making multiple high-value transactions –
    – in short succession, such as within a 24-hour period;
    – in a staggered and regular pattern, with no further transactions during a long period afterwards; or
    – to a newly created or to a previously inactive account.
  • Transferring VAs immediately to multiple VASPs, especially to VASPs registered or operated in another jurisdiction where –
    – there is no relation to where the customer lives or conducts business; or
    – there is non-existent or weak AML/CFT regulation.

To learn about more red flags for VAs, download the report.

 

Sept 2, 2020 – Follow-Up Report Sweden, China

A 1st regular follow-up report and technical compliance re-rating for the country of Sweden is now available. The following were noted:

  • Recommendation 26 – (Regulation and supervision of financial institutions) from partially compliant to largely compliant.
  • Recommendation 15 ( New technologies) from compliant to largely compliant.

Sweden is rated compliant on 14 Recommendations and largely compliant on 23 Recommendations. It is remains partially compliant on 3 Recommendations. Read the full report here.

 

A 1st enhanced follow-up report and technical compliance re-rating for the country of China is now available. The following were noted:

  • Recommendation 26 (Regulation and supervision of financial institutions) – from partially compliant to largely compliant
  • Recommendation 34 (Guidance and feedback) – from partially compliant to largely compliant
  • Recommendation 15 (New technologies) from partially compliant to largely compliant.

China is now compliant on 7 of the 40 Recommendations and largely compliant on 18 of them. It remains partially compliant on 9 of the Recommendations and not compliant on 6 of them. The country remains in enhanced follow-up and will report back to the FATF on progress. Read the full report here.

A number of other assessment reports for other countries are now available, visit here for more information.

 

July 24, 2020 – Illegal Wildlife Trade

The FATF has conducted a new study to provide guidance to countries on measures they can take to combat money laundering from the illegal wildlife trade.

Wildlife traffickers exploit weaknesses in the financial and non-financial sectors, to move, hide and launder their proceeds, enabling further wildlife crimes and damaging financial integrity. One of the most effective ways to identify the broader criminal networks and take the profit out of this crime is to follow the financial trails of wildlife traffickers.

Despite the significant criminal gains involved, countries and private sector are not prioritizing efforts to trace and combat financial flows from this trade in line with risk.

To combat the financial flows from the illegal wildlife trade, countries should therefore as a priority:

  1. Identify and assess their money laundering risks relating to the illegal wildlife trade.
  2. Ensure that national laws and powers for law enforcement allow authorities to go after the finances of wildlife traffickers, and to pursue financial investigations.

Read more about Money Laundering and the Illegal Wildlife Trade

 

July 7, 2020 – FATF View on Stablecoins

This report sets out the FATF’s views on so-called Stablecoins following the G20 request to consider the anti-money laundering and counter-terrorism financing issues relating to so-called Stablecoins.

The FATF has identified potential risks which may require further action including in jurisdictions where weak or non-existent AML/CFT programs and so-called Stablecoins with decentralized governance structures and anonymous peer-to-peer transactions via unhosted wallets.

The FATF proposes that all jurisdictions implement the revised FATF Standards on virtual assets and VASPs. FATF also wants to review the implementation and impact of the revised Standards by June 2021 to consider whether further updates are necessary. This will include monitoring the risks posed by virtual assets, the virtual asset market, and proposals for arrangements with potential for mass-adoption that may facilitate anonymous peer-to-peer transactions.

The FATF says it will provide guidance for jurisdictions on so-called Stablecoins and virtual assets, as part of a broader update of its Guidance. This will set out in more detail how AML/CFT controls apply to so-called Stablecoins, including the tools available to jurisdictions to address the ML/TF risks posed by anonymous peer-to-peer transactions via unhosted wallets.

The organization will also enhance the international framework for VASP supervisors to co-operate, share information, and strengthen their capabilities, in order to develop a global network of supervisors to oversee these activities.

FATF says in order to support those actions, the G20 needs to lead by example and ensure they have implemented the revised FATF Standards and calls on all other jurisdictions to do the same.

Read the entire: FATF Report to G20 on So-called Stablecoins

 

July 7, 2020 – Virtual Assets and VASPs

This report sets out the findings of the 12-month review undertaken by the FATF to measure how jurisdictions and the private sector have implemented the revised Standards.

The FATF has completed a review of the implementation of its revised Standards on virtual assets and virtual asset service providers (VASPs); 12 months after the FATF finalized these amendments. The June 2019 revisions to the FATF Standards clearly placed anti-money laundering and counter-terrorism financing (AML/CFT) requirements on virtual assets and virtual asset service providers. The FATF also agreed to undertake a 12-month review by June 2020 to measure how jurisdictions and the private sector have implemented the revised Standards, as well as monitoring for any changes in the typologies, risks and the market structure of the virtual assets sector.

This report sets out the findings of the review. The report reviews the implementation of the revised Standards and sets out:

  • How money laundering and terrorism financing risks and the virtual asset market have changed since June 2019);
  • Jurisdictions’ progress in implementing the revised Standards;
  • The private sector’s progress in implementing the revised Standards, including the development of technical solutions for the implementation of the travel rule;
  • Issues identified with the revised FATF Standards and Guidance; and
  • FATF’s next steps regarding virtual assets.

Read the 12 Month Review of Revised FATF Standards – Virtual Assets and VASPs

 

June 30, 2020 – High-Risk Jurisdictions

High-risk jurisdictions have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation, according to the FATF.

For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence (EDD), and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the country.

On 28 April 2020, the FATF decided on a general pause in the review process for the list of high-risk jurisdictions subject to a call for action. Therefore, please refer to the list of High-Risk Jurisdictions subject to a Call for Action adopted in February 2020. While the statement may not necessarily reflect the most recent status in Iran and the Democratic People’s Republic of Korea’s AML/CFT regime, the FATF’s call for action on these high-risk jurisdictions remains in effect.

Read the report on High-Risk Jurisdictions subject to a Call for Action

 

Jun 30, 2020 – Increased Monitoring

Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.

When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the ‘grey list’.

On 28 April, the FATF decided on a general pause in the review process for the list of jurisdictions under increased monitoring.

The FATF continues to identify additional jurisdictions, on an on-going basis, that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. A number of jurisdictions have not yet been reviewed by the FATF and FSRBs.

Read about the Jurisdictions under Increased Monitoring

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