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Paraguay Begins to Audit Local Crypto Industry to Comply with FATF Guidelines

Paraguay is looking to take its cryptocurrency industry mainstream, in light of the Financial Action Task Force’s (FATF) guidance on virtual asset service providers (VASPs) released earlier this year.

The Secretary for Preventing Money and Property Laundering, and the country’s anti-money laundering (AML) chief announced a crypto survey in the nation. The VASPs were asked to open their books to the government for auditing purposes for the first time.

The guidance on VASPs issued by the FATF in June prompted the Latin American country’s audit, which will help Paraguay’s government to understand its local crypto industry. According to CoinDesk, the Secretary for Preventing Money and Property Laundering said that it would “pave the way for the country’s first crypto-specific regulations,” which are headed to roll out in the first half of 2020.

Secretary Minister Christian Villanueva said, “Data obtained will be used to measure the degree of adoption, complexity, and size of the virtual asset market in Paraguay, with the purpose of drafting a regulation that adequately regulates them and mitigates the risk of misuse.”

The nation’s central bank warned that guarani currency is the only legal currency in the country last June. The International Monetary Fund estimated that informal employment takes up more than half of the country’s total jobs.

iComply on FATF Travel Rule: Cryptocurrency is Meant to be Trustless, Not Anonymous

In June of 2019, one of the most authoritative regulatory organizations worldwide, the Financial Action Task Force (FATF), issued new guidelines on how digital assets should be regulated.

A point that caused great concern and confusion for exchanges was the “travel rule,”: which refers to section 7(b) in the Interpretative Note to Recommendation 15 in the FATF Guideline, which requires Virtual Asset Service Providers (VASPs) to collect and transfer customer information during transactions. While FATF recommendations are not legally binding, the G-20 stated that it uses them to regulate cryptocurrencies for Anti-Money Laundering.

So what do these recommendations really mean, and how should exchanges or VASPs observe them? We decided to gather some of the questions being posed by those in the exchange and cryptocurrency sector and put them to an expert, Matthew Unger, CEO, iComply.

Matthew Unger is the CEO and co-founder of iComply Investor Services. At 22, he became one of the youngest executive financial advisors in Investors Group Financial Services’ history, building a $42-Million business in under five years. He has a decade of technology management consulting experience, driving innovation for companies ranging from high-growth startups seeking to scale into enterprise markets to major multinationals, including Virgin Group, Investors Group Financial Services, BDC, Bank of Canada, and has held Secret-Level clearance with CSIS (a.k.a. Canada’s CIA).

His previous FinTech experience includes leading the systems architecture on an end-to-end digital workflow solution for a wealth management firm in Canada. Unger previously led a proof of concept at MIT to use Ethereum to automate the matching and fulfillment of interest rate swaps over LIBOR.

iComply Investor Services (iComply) is a regulatory technology (Regtech) company focused on making financial markets more robust, secure, and efficient. Its mission is to improve the user experience of compliance for all counterparties in every transaction.

Does the travel rule spell the end of cryptocurrency anonymity?

No, it does not. The travel rule only applies to people who are trading or facilitating trades for others; it doesn’t impact peer-to-peer transactions.

The subset of digital assets dubbed privacy coins, which have long delighted libertarians and frustrated law enforcement, are feeling the pinch of a step up in regulation—what would you tell advocates of the technology who believe in the autonomy of personal finance and operating free of state surveillance?

A few points here:

The top two privacy coins are Monero and Zcash. Both are able to fully comply with the travel rule, depending on privacy settings that the user has enabled in their wallet. One of these is set to be private by default; the other is transparent by default. These coins will allow the user to give audit access (say, to a regulator) to view transaction details…and software can be created to enable these coins to be compliant at scale, without giving away transaction history to surveillance firms such as ChainAnalysis.

There is a larger conversation embedded in this question regarding state surveillance. While we want to be free, money has a direct impact on people’s lives. The reality is that crypto is often used in the child sex trade, to launder massive amounts of money, and to undermine the free democratic process in favor of corruption and foreign influence, such as was the case in the 2016 U.S. election (re: the Mueller report). We’ve seen even more extreme values on privacy in the last few years. While some people say privacy is more important, these people limit the current and potential uses of crypto in the financial system.

The original objective of this technology is not to be anonymous—it’s to be trustless.

You don’t need to know anything about an individual to know that you can trade with them and that their money is real. What the tech can’t do is tell you if the crypto is stolen, was used to harm someone, or was used to facilitate acts of terrorism, crime, or other illicit or harmful activities. In order to use crypto in good conscience, it’s prudent that users deal with people that they have vetted…although it’s not possible to know all their details (that eliminates the whole concept of trustlessness). You need policies to be managed at large institutions, so you know that you can actually use cryptocurrency properly.

The reality of the FATF travel rule is that it’s just a method of data standardization. Once you standardize that data format (i.e.: FIX for stock exchanges and SWIFT for banks and bank wires), and if you are an advocate of crypto adoption, having an open-source global data standard is the gateway to mainstream adoption.

Would a technology like Zero-Knowledge Proof be an acceptable way around the declaration of personal data required by FATF?

Again, the people who are required to report and use the FATF travel rule are already legally compelled to do KYC. There is no additional requirement. All this does is make sure that, for example, if someone takes all the money out of Quadriga and starts washing that money, at least people will know where the money went. This is not about the user of crypto making declarations; it’s about VASPs being held accountable for transparency and protection both of their users and the integrity of their platforms.

Zero-Knowledge Proof is a very broad term that could be implemented in many ways, but it’s not really a useful tool for this application. This is because you are not asking for authentication of info (such as, is this person’s name, date of birth, address, etc.). Instead, you’re required to actually pass that data forward from the sending VASP to the receiving VASP.

A much better framework than Zero-Knowledge Proof would be to use blockchain to ensure that users consent to their info being shared, which can be done off-chain using standard encryption and APIs, or other means.

Ryan Taylor, CEO of Dash Core Group said: “Exchanges are struggling to understand the specific requirements because the FATF regulation must be implemented in local jurisdictions, which will undoubtedly act on the guidance differently. For now, it is a guessing game.” —Will this mean that the travel rule is likely to be implemented unequally?

There is already a global standard emerging for adhering to the FATF travel rule. iComply, among other reputable companies from all around the world, have worked together to establish a best practice for how the travel rule data can be shared through a common standard (similar to FIX or SWIFT) while using blockchain to protect identities, privacy, and decentralization. This new standard will be a key discussion point at the FATF plenary in May 2020.

Again, we are merely talking about a standardized way to share data between VASPs. If a VASP wants to adopt its own standard for data, such as the format of the date of birth, it will be on them to maintain their data and the “translation” of that data with other VASPs. Adopting a public and open standard saves everyone time and money.

What advantages do you personally see for the crypto industry by the introduction of the travel rule?

First and foremost, there’s the mainstream adoption—because this is the last piece of compliance needed for crypto assets to be held to the same standard as the rest of the financial industry.

Secondly, without the FATF travel rule or something similar to the travel rule, the security token industry will never survive because every platform is creating its own protocol, which is causing massive fragmentation.

Finally, without the travel rule, institutional money cannot trade cryptocurrencies at scale and must rely on more intermediaries that charge high costs in order to maintain their existing compliance requirements, all while giving their clients adequate exposure to cryptoassets.

Bitpanda CEO Eric DeMuth has been urging the FATF for legal clarity—“Compliance must be possible from a technical level, and there is no clear way to achieve that.”—Are the legalities unclear, what advice would you offer DeMuth?

At a technical level, compliance has been possible from day one. The biggest barriers to compliance right now are the unwillingness of platforms to adopt a common standard and knowledge of VASP management teams. FATF is not a regulatory or enforcement body—they will not prescribe how things need to be done, but instead they will provide insights into the risks (the ‘why’) and what needs to be done. How you choose to do this is up to you—whether relying on some centralized data repository such as Equifax or Verisign, using solutions such as Madana, the MME and Crypto Valley Association proposal), or solutions that go much further to protect the privacy of users and promote the long-term growth of the crypto industry.

What key observations and understanding have you taken away from the travel rule?

The travel rule has in some ways divided the crypto industry against itself. Some that subscribe to ultra-libertarianism at all costs (ie: John McAfee) are directly pitted against those in the industry who want to see this technology used broadly and for positive, transparent change across the financial industry, governments, and societies.

The reality is that regulation in finance has been increasing steadily over the last century. And just because you happen to use a blockchain doesn’t make you immune to regulations that apply to some that used a different database structure. The FATF travel rule has caused a lot of fear, uncertainty, and dread in the crypto market, but this is completely unnecessary. It is a fairly straightforward regulatory requirement, and many platforms are already in full compliance. Those that are uncertain on how the travel rule impacts them should speak with an experienced legal or compliance advisor to help guide them through the process.

In the long run, we believe that once the industry has implemented a common standard for the FATF travel rule, it will unlock the ability to massively lower costs for KYC, transactions, and the business operations of running a VASP.

Iranian General Pushes for Crypto Use to Evade US Sanctions and After Being Blacklisted by the FATF

Saeed Muhammad, a commander of the Islamic Revolutionary Guard Corps’ “Army of Guardians of the Islamic Revolution,” called for Iran to use cryptocurrencies to bypass sanctions imposed on his country by the United States.

The sanctions imposed by the Trump administration and the withdrawal of the US from the Joint Comprehensive Plan of Action in 2018 led to the decrease of the value of Iran’s currency. Sanctions have had an effect on foreign trade and investment in the country; ever since cryptocurrencies have gained popularity in evading sanctions. The economic sanctions imposed by the US have shrunk the Iranian economy by 10 to 20 percent.

Iran added to the FATF blacklist

The intergovernmental organization, the Financial Action Task Force (FATF) recently added Iran to a blacklist of countries that have failed to comply with anti-terrorism financing requirements. Iran was added to the blacklist after more than three years of warnings from the FATF to comply with the requirements. Iran would be looking at tougher external auditing of financing firms and even more scrutiny of transactions with Iran.

Calling for the use of cryptocurrencies

According to Iranian crypto news organization Coinit.ir, Mohammad addressed a crowd on Feb. 26, “We are demanding the creation of a more sophisticated mechanism to bypass sanctions. To circumvent sanctions, we must develop solutions such as the exchange of products and the use of cryptocurrencies with our partnerships [in other countries].”

Iran’s development with crypto and blockchain

With the value of the country’s currency dropping and sanctions imposed, Iranian President Hassan Rouhani’s administration announced the idea of launching a national cryptocurrency in 2018. Since then, Iran’s Ministry of Industries, Mining and Trade have issued more than 1,000 cryptocurrency mining licenses to local operators.

The national government also has been working with blockchain startups to improve its financial infrastructure. The central government has been seen providing funding for one company, some private banks have been backing a few projects as well.

FATF Assessment Finds Majority of US Exchanges are Compliant with Virtual Asset Guidance

The Financial Action Task Force (FATF) has published an assessment of the US’s compliance with its revised criteria for anti-money laundering (AML) and terrorist financing (CTF) through virtual assets and found that most virtual asset providers are compliant.

Recommendation 15 – Travel Rule

It began in June of 2019, one of the most authoritative regulatory organizations worldwide, the Financial Action Task Force (FATF), issued new guidelines on how digital assets should be regulated.

While the recent FATF assessment concludes that, “the US remains rated as Largely Compliant with R.15,” it still cited minor deficiencies such as the requirement for US-registered money services to only be obligated to keep records of transactions of $3,000 or more, a limit three times that recommended by FATF, which the regulatory watchdog believes could be manipulated by bad actors. From the assessment, FATF wrote,“This higher threshold is not clearly supported by low ML/TF risks.”

The FATF also concluded that US Regulators, such as FinCEN and the SEC, are also behind in their investigations of convertible virtual currency (CVC) business. The watchdog was critical of the US Regulating bodies’ strategy which “does not specifically identify higher risk virtual asset service providers (VASP),” making their “various” examinations of high-volume exchanges and peer-to-peer networks insufficient.

Advantages of the Travel Rule

In a previous interview with RegTech expert and CEO of IComply, Matthew Unger told Blockchain.News about the advantages of implementing Recommendation 15 despite the concerns of many VASP and exchange operators.

Unger said, “First and foremost, there’s the mainstream adoption—because this is the last piece of compliance needed for crypto assets to be held to the same standard as the rest of the financial industry.”

“Secondly, without the FATF travel rule or something similar to the travel rule, the security token industry will never survive because every platform is creating its own protocol, which is causing massive fragmentation.” He concluded, “Finally, the use of the travel rule enables more institutional investors to trade cryptocurrencies for their clients while lowering the cost and manual compliance work required for each trade.”

Crypto & the FATF Travel Rule: FinCEN Suggests Challenges in Governance, Not Technology

The Financial Action Task Force (FATF) Travel Rule has been in the center of attention lately, which concerns crypto transactions above a certain amount must be accompanied by identifying information.

The rule is an update to the existing FATF Recommendation 16, regarding cross-border and domestic wire transfers, and is intended to address the anti-money laundering (AML) and counter-terrorist financing (CFT) challenges as crypto adoption increases. The FATF Travel Rule could mean implications for virtual asset service providers (VASPs), including cryptocurrency exchanges, wallet providers, and custodians.

Financial institutions in the FATF member states are recommended to implement the new regulations by June 2020, a year after it was adopted by the FATF in June 2019.

The FATF has started observing digital assets in 2014, and defining certain terms has always been a challenge for the task force. As Amy Davine Kim, the Chief Policy Officer at the Chamber of Digital Commerce explained at Consensus: Distributed explained, there are still ongoing concerns regarding cybersecurity and privacy concerns over the travel rule.

Since the COVID-19 pandemic emerged, the Financial Crimes Enforcement Network (FinCEN) has published advisories on March 16 and April 3, to warn financial institutions to stay alert for malicious fraudulent transactions, and AML operations during the COVID-19 pandemic. This was due to the increase in these types of cases, as bad actors have leveraged the pandemic for theft and money laundering activities.

The FinCEN has taken a technology-neutral approach so far, as the network has seen the most challenges relating to governance and processes, rather than technology.

Kenneth Blanco, Director of the FinCEN stated, “the FinCEN also plans to publish multiple advisories highlighting common typologies used in pervasive fraud, theft, and money laundering activities related to the pandemic to better help the financial sector to better protect, and report this activity.”

Blanco also added that the FinCEN has observed that cybercriminals predominantly launder their proceeds and purchase the tools to conduct malicious activities via virtual currency. He said, “During this time of crisis where our people are more at risk or more vulnerable than ever, we, all of us, have a duty and responsibility to use our abilities, tools, and talents to protect others and ensure the stability of this ecosystem that we are creating and it depends on trust.”

Blanco concluded,

“We encourage the virtual currency sector to continue collaborative efforts to develop and implement these solutions and to keep FinCEN apprised their progress, including to participate in FinCEN’s innovation hours program.”

Coinbase recently revealed that the company has become a banking client of JP Morgan’s, impacting the future outlook of cryptocurrency exchanges and banking relationships.

Regarding the news, Jeff Horowitz, the Chief Compliance Officer at Coinbase said the company is focusing on analytics and transaction monitoring systems as banks will want to see these features in the crypto ecosystem. While he is pleased to see JP Morgan and other banks getting into the space, he said he hopes to see solutions for lower barriers to entry, as well as the solutions to comply with the travel rule do not come from a money-making perspective.

He further suggested that a “regulated” VASP has not been defined globally, and the industry must work to decide a framework regionally, then work on going global.

Adam White, Chief Operating Officer at Bakkt said, “We’re going to see a bifurcation in the crypto space, we’re going to see white crypto, and we’re going to see grey crypto, and the different forms of crypto will most likely trade for different prices. Offshore unregulated exchanges that aren’t complying with the travel rule, their assets will be traded at different prices.”

Crypto & the FATF: ING Develops Travel Rule Protocol for Tracking Crypto Transfers Ahead of FATF Plenary Meeting

The FATF has a wide range of recommendations, a total of 40 to ensure regulatory alignment between the compliance imposed on financial institutions and the regulations in its member states. The FATF Travel Rule is Recommendation 16, which has received a lot of attention from the crypto industry, especially virtual asset service providers (VASPs).

The Travel Rule requires crypto transactions above a certain amount to be accompanied by identifying information. The rule requires these financial institutions to collect, disclose, and transfer information including names, addresses, and account numbers to be able to identify the originators and beneficiaries of the financial transactions.

The requirement of disclosing identifying information of the persons involved in financial transactions becomes an irony for cryptocurrency transactions — known for its anonymity and privacy features. Travel Rule requirements have raised concerns within the crypto ecosystem as it goes against the ethos of digital cash like privacy when transferring cryptocurrencies.

Financial institutions in the FATF member states are recommended to implement the new regulations by June 2020, a year after it was adopted by the FATF in June 2019. June 2020 is a significant month for the Travel Rule as their efforts will be reviewed at FATF’s plenary meeting, scheduled for June 24, 2020.

Around 90% of non-VASP activity will eventually pass through a VASP at some point or is required to make contact with a system connected to a VASP. With the implementation of the FATF Travel Rule, some parties may find themselves moving their crypto-related activities to unregulated or underregulated markets, which could mean riskier VASPs.

Netherlands-based ING Bank has recently developed a new protocol to assist crypto exchanges and companies dealing in digital assets to adhere to the Financial Action Task Force’s Travel Rule requirements.

The new solution, the Travel Rule Protocol (TRP), developed by ING is also backed by Standard Chartered Bank, Fidelity Digital Assets, and Bitgo, and other firms in the crypto industry.

A source close to ING allegedly said that ING is not currently looking at dealing in cryptocurrencies, but will be focusing on security tokens and similar products.

Although ING does not seem like it is joining the crypto ecosystem, ING is no stranger to blockchain. ING is one of the founding members of Contour, a blockchain-based trade finance platform built on R3 Corda.

UK FCA Regulator Proposes Mandatory AML Data Reports from Cryptocurrency Firms

The United Kingdom’s Financial Conduct Authority (FCA) has proposed an obligatory requirement for crypto exchanges in the UK to produce a report on anti-money laundering measures and data.

The UK’s Financial Conduct Authority (FCA) now wants crypto exchanges and crypto wallet custodians operating in the UK to provide more detailed information regarding money laundering risks.

The UK FCA regulator has put forward the proposal which is open to comment until November 23, 2020 and plans to publish a policy statement by the first quarter of 2021.

The FCA policy proposal published on Aug 25, is a plan by the UK financial regulator to impose obligatory AML reporting on digital asset firms and cryptocurrency wallet providers—a blanket-wide obligation for crypto exchanges large and small and “irrespective of their total annual revenue.”

FATF Recommends Extending AML Obligations to Crypto

In July 2016, the FCA introduced an annual financial crime reporting obligation for financial institutions on a range of indicators that reflect the potential money laundering risks of the firm services. The obligation to provide this financial crime information falls under the FCA’s Annual Financial Crime Report (REP-CRIM).

Based on the recommendations of the Financial Action Task Force (FATF)—an international body that sets global standards on combating money laundering and terrorist financing—the FCA now wants to extend the “the application of REP-CRIM to all firms we supervise.”

According to the proposal:

“We (FCA) consider that this approach will result in improving firms’ money laundering systems and controls, reduce actual risks of money laundering, and help improve the overall integrity of the UK financial system. It is also in line and builds on our data strategy, announced earlier this year, to use data and data analytics to transform the way we regulate and reduce the burden on firms.”

Under the new proposed rules, should they come into effect, crypto firms and cryptocurrency wallet custodians must provide information the FCA with information like the number of customers they serve in jurisdictions considered high risk and customers who refuse to comply and exit the services for suspicious reasons. This kind of AML information will be required by the FCA from crypto companies from their next “accounting reference date” after 10 January 2022.

The FCA also defined the term operates as “where the firm carries on its business or has a physical presence” as many cryptocurrency firms and custodians choose to register their business in tax haven territories such as the Cayman Islands.

UK FCA Grants First Crypto Licenses

As reported by Blockchain.News on August 21, the UK’s Financial Conduct Authority (FCA) has granted its first operating licenses for two crypto exchanges—one for Gemini and the other for Archax, officially making Archax the first regulated digital security exchange custodian and in the United Kingdom.

According to the FCA website, Archax and Gemini Europe Services were registered by the financial regulator on Aug. 18 and Aug. 19 respectively, after meeting the compliance standards of the authority.

The FCA implemented mandatory risk assessments for exchanges in January, to assess their compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations.

FATF Updates its Guidance to Service Providers to Include DeFi

The Financial Action Task Force (FATF) has updated its guidance governing Virtual Assets and Virtual Asset Service Providers (VASPs) with the inclusion of decentralized finance (DeFi).

DeFi Developers Can Qualify as VASPs

Despite the original standards of the FATF not qualifying DeFi apps as VASPs, the intergovernmental monetary watchdog says that there is no room for any virtual asset or financial asset to escape the regulatory oversight of the organization.

“Creators, owners, and operators or some other persons who maintain control or sufficient influence in the DeFi arrangements, even if those arrangements seem decentralized, may fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services,” the updated guidance reads.

DeFi applications have grown in popularity over the past year, with prominent lending platforms springing up across the board. The new guidance from the FATF seeks to cushion the likelihood of the applications being used as a source for money laundering and terrorist financing, thus requiring them to conduct Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.

In addition to DeFi, the new FATF guidance is also applicable to Non-Fungible Tokens (NFTs).

“Given that the VA space is rapidly evolving, the functional approach is particularly relevant in the context of NFTs and other similar digital assets. Countries should therefore consider the application of the FATF standards to NFTs on a case-by-case basis,” the document reads.

The updated guidance highlighted by the FATF features six key areas where the task force needed to exert its position. Amongst these areas is how “the FATF Standards apply to stablecoins and clarify that a range of entities involved in stablecoin arrangements could qualify as VASPs under the FATF Standards.”

Regulating DeFi: A Goodbye to Freedom?

The growth of DeFi and its associated innovations was centred on the fact that transactions within the growing ecosystem were solely in the control of the users. The guidance from the FATF implies that these transactions will no longer be as invincible as they used to be as non-custodial wallets, amongst other DApps will start requesting KYC details from users.

Despite this being a possibility, some industry stakeholders say they welcome regulations and will help usher the digital currency industry into its highly sought mainstream adoption era.

Crypto Service Providers Willing to Embrace FATF Travel Rule, Study Shows

The Travel Rule, which now governs service providers in the digital currency ecosystem, is arguably not a source of concern as a new report from Notabene shows many firms in the space are in compliance already.

Per the report, which surveyed 56 businesses across North America, Asia Pacific, Europe, Africa, and the Middle East, as many as 70% of businesses are either practising the rule or planning to complete their compliance in Q1/Q2 2022.

The Travel Rule demands businesses involved in cash or money transfers to report funds transactions of $1,000 and above to authorities, a move that is expected to curb money laundering and terrorist financing. With the emergence of Bitcoin (BTC) and altcoins, the Financial Action Task Force (FATF), an international watchdog responsible for developing the rule, has published guidelines and revisions to fit the evolution in the nascent digital currency ecosystem.

Per the Notabene report, about one-third of firms (31%) completely or partially adhere to the regulation. The report also revealed that 92% of respondents have internal compliance and legal departments, and 78% of these businesses consider these teams able to guarantee the company acts in accordance with external rules and internal controls.

In all, crypto-assets service providers are shown to be in broad compliance with many who have no technical expertise to implement the rules exploring other protocols that can be adopted.

Many critics have often dwelled on how cryptocurrency exchanges and other service providers have backed illegal use of Bitcoin and other coins with pseudo-anonymous provisions. However, platforms like Coinbase Global Inc, Binance, and Huobi have notably implemented transaction monitoring tools, a move that suggests players in the digital assets ecosystem are not anti-regulation.

From Notabene’s report, the broad compliance of players in the space to the Travel Rule can help them become active partners in shaping the future of the crypto payment industry.

FATF Releases Action Plan to Improve Implementation of Global Standards on Crypto

According to a study published by the Financial Action Task Force, often known as FATF, its delegates have reached a consensus on an action plan “to encourage prompt worldwide implementation” of global standards on cryptocurrencies.

According to a publication that was released on February 24 by the Financial Action Task Force (FATF), the plenary for the financial watchdog, which is comprised of delegates from more than 200 jurisdictions, recently met in Paris and reached a consensus on a roadmap that is intended to strengthen the “implementation of FATF Standards on virtual assets and virtual asset service providers.” The task force has said that it would provide a report on how FATF members have progressed in implementing the crypto standards in 2024. This study will include topics such as the regulation and monitoring of VASPs.

According to the findings of the research, “the absence of regulation of virtual assets in many nations presents possibilities that are used by criminals and terrorist financiers.” “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,” the Financial Action Task Force (FATF) writes. “This includes the ‘travel rule,’ which requires obtaining, holding, and transmitting originator and beneficiary information relating to virtual asset transactions.”

The “Travel Rule” established by the FATF contains a section that recommends virtual asset service providers (VASPs), financial institutions, and regulated organizations in member states gather information on the originators and beneficiaries of certain digital currency transactions. The financial watchdog said that as of April 2022, several nations were not in accordance with its requirements for combating the financing of terrorism and anti-money laundering.

The nations of Japan, South Korea, and Singapore have been among those that have shown the most willingness to put policies in place that are in line with the Travel Rule. According to reports, a number of countries, including Iran and North Korea, have been added to the “grey list” maintained by the FATF in order to monitor potentially illicit financial activities.