FATF Publishes Table of Jurisdictions With Materially Important Virtual Asset Sectors 

This week, the Financial Action Task Force (FATF), the international standard setter for anti-money laundering and counter terrorist financing rules, released a table detailing the implementation of its standards on virtual assets across fifty-eight jurisdictions. Below we explore the necessity of the table, the methodology used to include countries, and the implications for countries and their virtual asset service providers (VASPs). TRM Labs was pleased to contribute data to this table and looks forward to continuing to support FATF in their important work.

‍Why a table? 

FATF requirements on virtual assets have been in place for nearly five years, and starting next year - with the commencement of the 5th round of mutual evaluations - countries will undergo full assessments regarding their implementation of these rules. FATF's preliminary findings over this initial five-year period have shown suboptimal results. In June of last year, FATF reported that 75% of assessed jurisdictions were only partially compliant or non-compliant with their rules. This poses a problem since both FATF's report and TRM's analysis indicate a direct correlation between the implementation of regulatory frameworks and the levels of illicit finance to which a jurisdiction is exposed.

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FATF’s table aims to expedite the implementation of regulatory frameworks, including the travel rule, by providing each jurisdiction with a roadmap for enhancing implementation. The goal is to ensure that jurisdictions with the most significant centralized services such as exchanges, brokers, and custodians – to which FATF standards apply – develop robust frameworks to safeguard the integrity of their sectors. 

This is crucial because on-and-off ramps such as exchanges remain critical points for criminal exploitation of virtual assets. Moreover, FATF is mandated to monitor emerging risks within all the sectors for which it sets standards. Accurate identification of these risks requires countries to properly record them in risk assessments and possess the necessary tools to identify new risks as they arise.

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How was the table decided? 

The table highlights the work of all 38 FATF member statees and 20 additional jurisdictions. The methodology for inclusion in the table is as follows:

1. The jurisdiction is an official member of FATF 
2. The jurisdiction hosts VASPs with >0.25% of global virtual asset trading volume
3. The jurisdiction has 1 million or more active users 

FATF makes clear in its accompanying report that being on the table does not imply that a jurisdiction has a significant link to illicit finance as this was not considered as part of the methodology, “A jurisdiction’s inclusion in the table therefore carries no indication – either positive or negative – regarding that jurisdiction’s degree of risk or its level of compliance.”

The methodology and number of countries is consistent with TRM’s analysis that 21 jurisdictions make up 70% of global virtual asset exposure. 

What were the findings?

Among the 58 jurisdictions included:

• 100% had completed or begun a virtual asset risk assessment 
• 91% had either enacted, or were in the progress of enacting legislation to introduce licensing/registration requirements, as well as AML/CTF obligations
• 79% had actually licensed or registered VASPs
• 88% had conducted or begun supervisory inspections
• 79% had conducted or begun enforcement or supervisory action on VASPs 
• 84% had enacted, or were in the process of enacting, the Travel Rule 
• 9% had banned, or were in the process of banning, the use of virtual assets and VASPs 

The findings were based on jurisdictions’ responses to a 2023 self-reported survey conducted by FATF. Jurisdictions were also asked to provide basic evidence to support their responses. 

Where can I find the table? 

The full table can be found here. 

In addition to the table, we are also expecting another Targeted Update report likely around the June 2024 plenary which will further expand on the efforts of all jurisdictions in complying with the recommendations. 

‍What does it mean for virtual assets? 

In it’s report, FATF said that “the purposes of this table are to enable the FATF network to best support these jurisdictions in regulating and supervising VASPs for AML/CFT purposes and to encourage jurisdictions with materially important VASP activity to fully implement Recommendation 15 in a timely manner. This table also seeks to help supervisors/regulators and the private sector around the globe discern the status of implementation of Rec.15 by jurisdiction with materially important VASP activity.”

With this in mind, how can this table be used by different stakeholders in the virtual asset space? 

By the public sector 

For policymakers and regulators around the world, this table will be a useful, quick reference tool for understanding: 1) how their jurisdiction compares with others; and, 2) the regulatory frameworks of other countries and how effective those frameworks are.

On the first benefit, the FATF table will act as a “shopping list” for the areas a jurisdiction needs to improve upon. These might already be well known to the jurisdiction but the table could provide an added incentive to push resources and influence political will. The table may also encourage countries to share resources for implementing Recommendation 15. The table highlights areas that countries are struggling with allowing other jurisdictions to potentially provide help and resources. 

On the second benefit, the table could provide insights to countries in order to help them assess risks of counterparties of transactions flowing in and out of their jurisdictions 

By the private sector 

For the private sector, the table can also be a useful reference. Often VASPs, either when complying with the travel rule, or more generally in carrying out business, struggle to identify the quality of a foreign jurisdiction’s supervisory regime. A jurisdiction which they might assume has a weak system might in fact have the very opposite. Or a smaller, less resourced VASP could use the list of jurisdictions to better understand which counterparties are likely to have fully implemented the travel rule. 

For these private sector entities, this table will give an indication of the extent to which countries are meeting the standards and thus inform the extent to which due diligence is required when engaging with those countries. 

How can TRM help?

If you are a policymaker or regulator striving to comply with or better understand Recommendation 15 get in touch today and check out our guides to licensing, investigating unregistered VASPs and ongoing supervision. Sign up to our newsletter to be the first to hear about our upcoming webinar series on leveraging blockchain intelligence for regulators. 

If you’re a virtual asset service provider, get in touch here and in the meantime read our guide to “Crypto Compliance in the Second Age of Digital Assets”. 

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