Too few jurisdictions follow virtual asset guidelines: FATF

The majority of jurisdictions worldwide only partially comply with the Financial Action Task Force (FATF) recommendations on regulating virtual assets, according to a recent report.

Some progress has been made, but it is not enough, according to a report published on July 13. More efforts are needed to fully comply with FATF recommendations and create a coherent global strategy for regulating virtual assets.

According to the research:

Fifty-eight percent of jurisdictions have introduced some level of regulation for virtual asset service providers (VASPs). Only 42 percent have fully implemented the FATF’s “travel rule,” which requires sharing customer information between VASPs.

FATF noted that significant deficiencies persist in areas such as auditing and monitoring of VASPs.

Who is sleeping?

Jurisdictions with the highest compliance levels typically have well-established financial sectors and strong anti-money laundering frameworks.

But developing countries face greater challenges in implementation.

Given that financial crime threats continue to grow, the report underlines the critical role of ongoing international cooperation and information sharing to address these deficiencies and maintain the security and resilience of the virtual asset ecosystem.

The report also highlights that, although some progress has been made, additional efforts are required to fully implement FATF guidance and ensure a globally coordinated approach to regulating virtual assets.

Crypto regulations in the US and UK are in conflict

As the global cryptocurrency market has evolved, regulators in the US and the UK have taken different approaches to harmonize the industry.

The regulatory landscape in the US consists of a series of rules, with various federal agencies claiming jurisdiction over different aspects of the crypto sector.

The Securities and Exchange Commission (SEC) has taken an assertive stance by classifying many cryptocurrencies as securities and actively pursuing non-compliant firms. Meanwhile, the Commodity Futures Trading Commission (CFTC) has opted for a more lenient “do no harm” approach that allows crypto derivatives trading.

What complicates matters further is that some states in the US impose their own licensing and regulatory requirements on crypto businesses, leading to a fragmented compliance landscape.

On January 10, the U.S. Securities and Exchange Commission (SEC) made a significant announcement by granting certain bitcoins the same status as exchange-traded products (ETPs). This groundbreaking approval recognizes the real-world value of cryptocurrencies, paving the way for more digital assets to be integrated into the traditional economy. It also underscores the SEC’s commitment to improving regulation of the crypto industry; the move is expected to impact U.S. regulatory and compliance frameworks in the future.

While the US has taken a stricter enforcement stance on cryptocurrency regulations, the UK has adopted a more collaborative model in its efforts to bring the industry into compliance.

In the UK, a key regulatory strategy involves the implementation of the “travel rule” by the Financial Conduct Authority (FCA). This rule aligns with global anti-money laundering standards set by the FATF and requires cryptocurrency companies to share customer information when transferring funds.

The implementation of the UK travel rule is vital to combating financial crimes such as money laundering in the crypto space. Aligning regulations with international standards will create a safer environment for crypto transactions.

Additionally, initiatives such as the Bank of England’s work on stablecoin frameworks further underscore the UK’s commitment to integrating cryptocurrencies into the wider financial system.

By adopting a collaborative regulatory approach, the UK aims to establish itself as a leading global hub for cryptocurrency and blockchain innovation.

As both the US and UK navigate the maturing cryptocurrency market, they must strike a balance between managing potential risks and supporting innovation.