FATF Reports Majority of Jurisdictions Fall Short or Fail to Comply with VASP Sector Recommendation

A significant number of jurisdictions surveyed by the Financial Action Task Force (FATF) are not fully complying with anti-money laundering regulations for the virtual assets sector, according to a recent update. Out of 130 jurisdictions, 97 are only partially or not compliant with Recommendation 15, which requires governments to implement these standards. This figure remains unchanged since April 2023. The update, known as the Targeted Update, reveals that many jurisdictions are struggling to meet the fundamental requirements of Recommendation 15. Specifically, 42 out of 147 have not conducted a virtual asset risk assessment. Furthermore, over a quarter of respondents were undecided about regulating virtual asset service providers (VASPs). The update also states that 60% of jurisdictions permit VASPs, while 14% explicitly prohibit them. However, it is important to note that the prohibition of VASPs does not necessarily mean compliance with FATF recommendations. In terms of the travel rule, insufficient progress has been made, with 30% of respondents not passing legislation to implement it. The update also highlights that even among jurisdictions that have passed this legislation, supervision and enforcement remain low. Only 26% of jurisdictions have taken action against VASPs to enforce the travel rule. The FATF recommends the establishment of regulatory frameworks to address these issues. It also emphasizes that virtual assets, including stablecoins and anonymity-enhancing cryptocurrencies, are increasingly being exploited by terrorist organizations and rogue states like North Korea. To combat this, the FATF suggests that jurisdictions assess and monitor the risks associated with stablecoins and take appropriate action. It also recommends developing a regulatory framework for decentralized finance platforms and sharing good practices and challenges with the Virtual Assets Contact Group members.