For one week, from 13 to 18 October, representatives of 205 countries and jurisdictions, the IMF, UN, World Bank and other organizations (OECD, OSCE, Europol, Egmont Group of Financial Intelligence Units, ...) met in Paris for the Financial Action Task Force (FATF) week.
This week chaired by the FATF President Xiangmin Liu of the People's Republic of China is the first meeting under the Chinese presidency. The most critical initiatives that have been discussed during FATF plenary week are money laundering risk from "stablecoins" and other emerging assets and understanding and leveraging the use of digital identity.
Money Laundering risk from "stablecoins" and other emerging assetsThe FATF has reached agreement on how to determine whether countries have taken the necessary steps to implement the new requirements. Given the global nature of the virtual asset sector, countries and their governments need to understand the importance of implementing these requirements quickly by understanding risks and ensuring effective oversight of the sector.
The FATF is responsive to developments and will actively engage with the private sector to clarify FATF requirements.
The emerging assets like stablecoins, together with their global offering networks and platforms, could potentially change the ecosystem of virtual assets and have consequences for money laundering and terrorist financing risks.
Stablecoins are cryptocurrencies designed to minimize the volatility of the price of the stablecoin, relative to some stable asset or basket of assets.
Stablecoins and their service providers will be subject to FATF standards either as virtual assets and virtual asset service providers or as traditional financial assets and their service providers. Increased FATF surveillance of emerging assets will continue to be a focus. It will be up to the national authorities to implement rules through laws and regulations. FATF will continue to promote the implementation of its standards around the world and ensure the relevance and responsiveness of these standards.
Understanding and leveraging the use of digital identityDigital payments are growing strongly. Client identification is important to prevent criminals/terrorists from collecting and moving funds. But in the digital world, the methods of identifying customers are multiple. A document outlining the guidelines proposed by the FATF on the use of digital identity is being formalized. This document will tend to help governments, financial institutions and others to apply a risk-based approach while using digital ID systems.
FATF is not against financial innovations but desires safe spaces. Companies must be responsible and help to ensure the financial market 'security.
Other topics discussed at the FATF plenary weekDuring this week, various assessments were made for certain countries such as Turkey, Norway and Brazil. In the previous related article, the case of Pakistan was stressed under its deficiencies with AML / CTF system and whether Pakistan would remain on the FATF scrutiny list or not. It has been decided that Pakistan will remain on the grey list until February 2020, the time to meet all the recommendations entirely. Pakistan did not complete all its obligations before the deadlines and FATF is worried about Pakistan's lack of progress on the AML/CFT risks.
Regarding Iran, the FATF has set a deadline (February 2020) to comply with international standards on the fight against money laundering and the financing of terrorism. If Iran does not take action, the FATF will take countermeasures.
FATF also reviewed its list of jurisdictions with strategic deficiencies. The list identifies the jurisdictions with the most strategic AML/CTF lacks. The FATF is aware that each jurisdiction deals with its situation and accepts the commitments and deadlines that each jurisdiction presents. If the deadlines are not respected, the jurisdictions remain in the list. During the coming year, the FATF will proceed with other countries assessments as all jurisdictions have not been reviewed yet.
Other strategic initiatives have been taken. One of them is "Best Practices on Beneficial Ownership for Legal Persons". The FATF recognised the paper about this topic and published on its website. In this document, key elements for an effective system can be found and the challenges that are forecast including relevant examples.