The Financial Action Task Force (FATF) has found that the majority of jurisdictions surveyed are not fully compliant with the anti-money laundering recommendations for the virtual assets sector. According to the FATF’s latest update, 60% of jurisdictions have decided to permit virtual asset service providers (VASPs), while 14% explicitly prohibit them. However, the FATF warns that stablecoins and anonymity-enhancing cryptocurrencies are increasingly being used by terrorist organizations and rogue states.
The FATF highlights that 97 out of 130 jurisdictions are only partially or not compliant with Recommendation 15, which requires governments to implement anti-money laundering standards for the virtual asset sector. This figure remains unchanged from April 2023. The update reveals that many jurisdictions are struggling to meet the fundamental requirements of Recommendation 15, with 29% failing to conduct a virtual asset risk assessment. Additionally, over a quarter of survey respondents were undecided about regulating the VASP sector.
While 60% of jurisdictions permit VASPs and 14% explicitly prohibit them, the FATF emphasizes that prohibition does not necessarily mean compliance with its recommendation. The implementation of the travel rule also remains a challenge, with nearly one-third of survey respondents failing to pass legislation implementing it.
The update reveals that even among jurisdictions that have passed Travel Rule legislation, supervision and enforcement are lacking. Only 26% of jurisdictions have taken action against VASPs in relation to the Travel Rule.
To address the misuse of virtual assets, including stablecoins and anonymity-enhancing cryptocurrencies, by terrorist organizations and rogue states, the FATF recommends that jurisdictions assess and monitor illicit finance risks associated with stablecoins and take mitigating action. The FATF also suggests developing a regulatory framework for decentralized finance platforms to ensure responsible entities are captured and appropriate action is taken. Furthermore, the FATF encourages the sharing of good practices and challenges with the Virtual Assets Contact Group (VACG) members.
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