Revised FATF Standards ‘Clearly Apply’ to Stablecoins

Source: Regulation Asia Editors, Regulation Asia 2020-07-09

Stablecoins are better placed than many virtual assets to achieve mass-adoption, which makes them vulnerable to AML/CTF risk, the FATF says.

As highlighted at the June 2020 Virtual Plenary, the FATF (Financial Action Task Force) has published a report on the money laundering and terrorist financing risks of stablecoins.

“So-called stablecoins have the potential to spur financial innovation and efficiency and improve financial inclusion,” the report says. “When reviewing current and potential projects, so-called stablecoins appear better placed to achieve mass-adoption than many virtual assets.”

According to the FATF, this propensity for mass-adoption makes stablecoins vulnerable to criminal abuse for money laundering and terrorist financing, particularly due to their potential for anonymity, global reach and layering of illicit funds.

In June 2019, the FATF strengthened its Standards to clarify the application of AML/CTF requirements to virtual assets and VASPs (virtual asset service providers). A 12-month review into implementation progress has been concurrently released.

To understand whether the revised FATF Standards are sufficient to mitigate the ML/TF risks associated with stablecoins, the FATF assessed the five largest stablecoins (Tether, USD Coin, Paxos, TrueCoin, Dai) and two proposed stablecoins (Libra, Gram).

Based on this assessment, the FATF has concluded that the revised Standards “clearly apply” to stablecoins, and that further amendments are not required at this time.

The revised Standards, it says, already capture a range of entities that would be involved in any stablecoin system or arrangement, including the central developers, governance bodies, and the VASPs through which stablecoins can be traded, transferred or held.

As such, the FATF is calling calls on all jurisdictions to implement the revised FATF Standards on virtual assets and VASPS as a matter of priority:

“The first step to ensuring an effective global response to so-called stablecoins, and virtual assets more broadly, is ensuring that the FATF’s pre-existing Standards are transposed into domestic law and operationalised.”

The FATF plans to review the implementation and impact of the revised Standards by June 2021 to assess whether further updates are necessary.

In addition, it will provide additional Guidance setting out in greater detail how AML/CFT controls apply to so-called stablecoins and virtual assets.

FATF

AML

CTF

Stablecoins

Revised FATF Standards ‘Clearly Apply’ to Stablecoins

Subscribe to Our Newsletter!

Subscribe to Our Newsletter!