Less Than 30% of Jurisdictions Regulate Cryptocurrency, FATF Calls for Action
In an interview with CoinDesk from Singapore, Financial Action Task Force (FATF) President T. Raja Kumar revealed a concerning statistic: fewer than 30% of jurisdictions worldwide had begun regulating the cryptocurrency sector as of June 2023.
This revelation, detailed in a progress report titled “Status of Implementation of Recommendation 15 by FATF Members and Jurisdictions with Materially Important VASP Activity,” highlights the urgent need for regulatory action.
Recommendation 15 urged jurisdictions to address money laundering and terrorist financing risks associated with cryptocurrencies by licensing or registering virtual asset service providers (VASPs) and conducting thorough reviews of their operations.
While FATF recommendations are not legally binding, non-compliant jurisdictions risk global isolation, including drops in credibility ratings and potential placement on the FATF’s watchlist.
The cryptocurrency industry has faced credibility and security challenges, with high-profile hacks and allegations of facilitating illicit activities. FATF’s report serves as a “call to action,” emphasizing the need for countries to take proactive measures to combat these risks.
Raja Kumar likened virtual assets to water, highlighting their ability to flow to less regulated jurisdictions. He stressed the importance of preventing regulatory arbitrage and ensuring global regulatory coherence to deter criminals and terrorists from exploiting loopholes.
The purpose of the report, according to the FATF chief, is to raise awareness and encourage collaboration between regulators and the private sector. With virtual assets being inherently international and borderless, inadequate regulation in one jurisdiction can have far-reaching consequences.
The report cited instances of virtual asset misuse, including the Democratic People’s Republic of Korea’s theft and laundering of hundreds of millions of dollars’ worth of cryptocurrencies and the increasing use of cryptocurrencies by terrorist groups.
FATF has been urging jurisdictions to fully implement its recommendations, categorizing them as compliant, largely compliant, partially compliant, or non-compliant based on various criteria. These criteria include legislation or regulation requiring VASP licensing, supervisory inspections, enforcement actions, and compliance with the controversial “travel rule.”
The report acknowledged ongoing assessments in certain jurisdictions and highlighted the need for continued efforts to enhance regulatory oversight.
It is worth noting that in February 2024, FATF agreed to publish an overview of jurisdictions’ regulatory steps regarding VASPs, leading to the comprehensive analysis provided in the report. The examination covered FATF members and other jurisdictions hosting significant crypto-related activities over a 12-month period.
As global interest in cryptocurrencies continues to grow, regulatory scrutiny becomes increasingly vital to safeguarding financial integrity and combating illicit activities.
FATF’s call to action underscores the collective responsibility of governments, regulators, and industry stakeholders to foster a robust regulatory framework for the cryptocurrency ecosystem.
