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Decentralized exchanges are also recognized as virtual asset service providers and need to comply with relevant regulatory regulations.
Original title: ” Regulating DeFi? The latest FATF compliance spirit, you need to understand the next “
Written by: anchain.ai
Compilation: Katie Gu
For crypto companies/teams, tightening of regulations may result in severe penalties, including fines, restrictions, etc. To avoid this situation, adjustments must be made in a timely manner to comply with FATF (Financial Action Task Force on Anti-Money Laundering) regulations. In order for companies or individuals to make appropriate compliance adjustments, we must first understand the scope of VASP (Virtual Asset Service Providers) defined by FATF. Below, we will bring an interpretation of the latest FATF cryptocurrency compliance spirit.
What are virtual assets (VA)?
Any digital form of value (formed on the blockchain), including:
But not including:
- Digital currency issued by the central bank
What is a virtual asset service provider (VASP)?
According to the latest FATF guidelines, VASP is any individual or enterprise that facilitates transactions, transfers, custodians, or issuers to provide/sell virtual assets, including any of the following:
In 2018, after the unprecedented boom and bust in the cryptocurrency market, FATF updated its requirements to include two new terms and definitions: virtual asset (VA) and virtual asset service provider (VASP). This update clearly states that all new and old FATF requirements apply to activities involving VA and VASP.
The 2018 update has had a serious and lasting impact on the encryption field, “traditional” financial services and new related technologies. In the past ten years, FATF has been updating its guidelines in the field of cryptocurrency, but clarifying and integrating the new term provides a strong reference for “how countries should properly establish regulations on cryptocurrencies.”
FATF (Anti-Money Laundering Financial Action Task Force)
FATF is a powerful non-governmental organization responsible for helping the international financial system eliminate anti-money laundering (AML) and combating terrorist financing (CFT) criminal activities.
Its guidelines became required guidelines and then developed into policies to be further improved and managed by FATF member states. Over time, as member states work together to coordinate their interests and reduce friction between them, consistent standards will emerge. When FATF updates its requirements, it is expected that these requirements will be incorporated into federal law.
These policies usually come in the form of KYC requirements, which stipulate the amount of information that must be shared between individuals and businesses in order to conduct transactions with each other legally. This KYC information is an important tool for law enforcement agencies to perform their duties in investigating financial crimes, especially money laundering and terrorist financing.
Virtual Assets (VA) and Virtual Asset Service Providers (VASP)
In other words, VA and VASP must comply with FATF guidelines. Next, it is important to understand the composition of VA or VASP. Companies or individuals must both regulate and comply. The 2018 recommendations left us with the following criteria for defining VAs and VASP:
It is a digital form of value that can be traded or transferred digitally.
Can be used for payment or investment purposes.
Does not include the digital form of legal tender.
Does not include the digital form of securities.
It can be a legal person or a natural person or a business entity, and act as a business on behalf of another natural person or a legal person or business to perform one or more of the following activities:
Transactions between VAs and legal tender.
One or more forms of transactions between VAs.
Facilitate the transfer of assets of VAs.
Custody and/or management of VA or tools capable of controlling VA.
Participate in and provide financial services related to the provision/or sale of virtual assets by the issuer.
This is a standard for measuring whether an individual or entity falls within the regulatory scope of the blockchain field recommended by FATF.
However, in March 2021, FATF expanded its guidelines.
It is worth noting that this content expansion update further clarifies the definition of VA and VASP. At the same time, in 2020 and the previous years, the application of various blockchain technologies is also increasing.
39 member states of FATF
In particular, FATF clarifies the following:
Most NFTs should be considered VA.
Stablecoins should be regarded as VA.
The digital currency issued by the central bank should not be regarded as VA.
Decentralized exchanges should be regarded as VASPs.
Decentralized platforms or DAPPs are regarded as VASPs (So far, the relevant smart contract developers are regarded as VASPs because the code written to perform operations falls under the VASP definition stipulated in 2018)
VA hosting services are all VASP.
Any platform that promotes P2P transactions between individuals is VASP.
These recommendations were approved in June 2021. As the field of encryption matures, the clarity of these content expands the scope of what types of activities the federal government should and will supervise. With the application of unclassified technologies and the emergence of new technologies, it is expected that these definitions will continue to be updated over time. All VASPs need to use tools that can improve AML-CFT’s ability to control and monitor counterparty risk. The faster companies adopt dynamic tools to ensure compliance with the latest content, the more likely they are to keep pace with FATF cryptocurrency compliance and avoid severe penalties.
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