According to a recent report by the Financial Action Task Force (FATF), 75% of surveyed jurisdictions are either partially compliant or non-compliant with the anti-money laundering recommendations for the virtual asset sector. The FATF’s latest update reveals that while 60% of jurisdictions (88 in total) have decided to allow virtual asset service providers (VASPs), 14% (20 jurisdictions) have explicitly prohibited them. The organization also warns that stablecoins and anonymity-enhancing cryptocurrencies are increasingly utilized by terrorist groups and rogue states.
FATF Members Struggle with Key Requirements
The FATF report highlights that 97 out of 130 jurisdictions are not fully compliant with Recommendation 15, which mandates the implementation of anti-money laundering standards for the virtual asset sector. This update shows that the compliance rate has not changed since April 2023.
The Targeted Update indicates that many jurisdictions face difficulties in meeting the essential requirements of Recommendation 15. Notably, 29% (42 out of 147) have not conducted any virtual asset risk assessments. Additionally, over a quarter of the surveyed jurisdictions remain undecided on regulating the VASP sector.
While 60% of jurisdictions (88) permit VAs and VASPs, and 14% (20) explicitly prohibit VASPs, prohibition does not necessarily mean compliance with FATF standards. The FATF reports:
“Jurisdictions have made insufficient progress on implementing the Travel Rule. Nearly one-third (30%) of respondents, excluding those that explicitly prohibit VASPs, have not passed legislation implementing the Travel Rule.”
The 2024 update further reveals that even jurisdictions with Travel Rule legislation often lack proper supervision and enforcement. Only 26% (17 out of 65) have taken action against VASPs based on the Travel Rule.
FATF Recommends Stronger Regulatory Frameworks
The FATF update reiterates concerns over the misuse of virtual assets, including stablecoins and anonymity-enhancing cryptocurrencies, by terrorist organizations and rogue states like North Korea. To address these issues, the FATF advises jurisdictions to assess and mitigate the illicit finance risks associated with stablecoins. It also recommends establishing regulatory frameworks for decentralized finance (DeFi) platforms to ensure responsible entities are appropriately managed.
Furthermore, the FATF suggests that jurisdictions share good practices and challenges with members of the Virtual Assets Contact Group (VACG).
