16 November 2020
Thank you Anson for that introduction and thank you to IDAXA and GDF for convening this meeting today.
As Anson said, I lead the FATF Secretariat, which helps countries around the world combat money laundering, terrorist, and proliferation financing.
When the V20 met last year in Japan, there was a fair degree of scepticism about the FATF, the new global standards and the impact they would have on the virtual asset sector.
What have we seen since then? The sector has continued to grow, evolve and edge closer to mainstream adoption. Attention has continued to grow by governments, from national authorities to the G20. And understanding of the importance of anti-money laundering and counter terrorist financing controls in the sector has continued to grow. We have seen jurisdictions introduce new laws and regulations to implement the new Standards and by industry in developing technological solutions to enable compliance.
Today I will set out FATF’s perspective on the progress made, and where we are heading. Before going further though, it is important to reflect on the importance of the V20.
As a policy-making body, the FATF needs to understand the implications for business on the ground. It is in our interests that businesses operate under reasonable standards that work in practice. To achieve this, we engage in continuous dialogue with each other.
This outreach is particularly important for the VASP sector. It is a sector where the only constant is change. Innovation in technology, products and business practices is breath-taking. It is through events such as the V20 that we can better understand new developments, identify new and emerging risks and design global standards that are effective.
The private sector is the first line of defense against the threats we face. This is why it is a collective mission for us all. And this is the reason why the V20 is so important.
Virtual assets have been a priority for the FATF since 2013, when we published our first guidance. Since then, the level of interest and concern worldwide has grown substantially.
There is a plethora of international bodies with interests in virtual assets. The G20 naturally is one of the most important. On one hand, they take our warnings very seriously about the potential risks of virtual assets, including so-called global stablecoins. But they also understand that the payment system needs to be modernised, to offer faster, cheaper, more accessible payments. Virtual assets can and should help to achieve that goal.
In 2018, G20 Leaders called for virtual assets to be clearly regulated for anti-money laundering and counter terrorist financing purposes. And in June 2019, the FATF set the first ever global standards in this area.
Since then the G20 has focused its attention on so-called stablecoins. This has involved the FSB, IMF and the FATF examining the risks and opportunities.
The FATF Standards clearly apply to so-called stablecoins and their service providers. For the risks to be mitigated, all countries need to effectively implement these standards.
In October, the FATF President, Marcus Pleyer of Germany, presented our report to G20 Finance Ministers and Central Bank Governors.
In its statement following the meeting, the G20 made it clear that they do not support any so-called ‘global stablecoins’ commencing operation until the legal, regulatory and oversight requirements are adequately addressed through appropriate design and by adhering to applicable standards.
This means that service providers must identify the risks of new technologies and products. They must then manage these risks and target harden their businesses by putting risk mitigation measures in place prior to launch.
The FATF will continue to closely monitor these risks and update the G20 on developments.
As so-called stablecoins have dominated the conversation on virtual assets at the G20, the FATF has broadened its focus over the last year.
The new global standards have been a watershed for the FATF’s relationship with the virtual asset sector. They enable the public and private sectors to identify, assess and mitigate the risks related to virtual assets. Virtual asset service providers now have clear obligations to understand their risks, report suspicious transaction, conduct customer due diligence, keep records and comply with the ‘travel rule’.
The agreement last year for global standards were only the first step however. They will only protect your businesses if they are effectively implemented. So the FATF is closely monitoring the virtual assets market. In June, we completed a 12-month review of implementation.
We found there has been good progress by the public and private sectors. 25 of the FATF’s 39 members have transposed the revised global Standards into their domestic legislative frameworks.
While this is a good start, there is a long way to go. We need a global response by all jurisdictions. VASPs can move quickly between jurisdictions. The FATF President has been clear that the FATF will not tolerate jurisdictions leaving loopholes for regulatory arbitrage that criminals can exploit. We are assessing countries against the global Standards and we will not shy away from identifying those who continue to expose the financial system to these risks.
In terms of the private sector, our review found that implementation by service providers remains relatively nascent. Many businesses do not have a history of regulatory oversight, and they are unfamiliar with the risks and requirements. The rapid technological change and growth in the sector adds to this challenge.
However, our review found the private sector has made progress in developing technological solutions for the so-called ‘travel rule’. Since June 2019, we have seen the development of technical standards, protocols and technological solutions from a range of different organisations and alliances, many who are present here today. The FATF recognises and commends you for that.
Nonetheless, the travel rule is not yet being implemented globally or effectively. When we published the review, we called "upon the sector to redouble its efforts towards the swift development of holistic technological solutions encompassing all aspects of the travel rule”.
So there is more work for us all to do and I hope that the V20 will continue to help us move closer to reaching our common goal.
Not only is implementation important, but the Standards must accommodate new and emerging risks. So I will make some quick observations on what we have seen in terms of the misuse of virtual assets for illicit purposes.
Through the collection of over 100 cases from countries around the world, the FATF has observed the use of virtual assets for a range of crimes. This includes money laundering from, and the facilitation of a wide range of crimes including the sale of drugs and illicit firearms, fraud, tax evasion, computer crimes including cyberattacks, child exploitation, human trafficking, terrorism financing and sanctions evasion. In recent months, we have also seen the increased use of virtual assets to move and conceal illicit funds in response to the pandemic. Earlier this year we published a report on the new risks emerging from the pandemic and how countries can mitigate these risks. The G20 has welcomed this work in particular as it helps protect vital financial lifelines for the public and businesses.
The value of virtual assets involved in these crimes has been relatively small but we have seen increasing exploitation of virtual assets by professional money laundering networks.
We have also seen the increasing abuse of service providers registered or operating in jurisdictions that lack effective regulation. We have seen the continued use of methods to increase the anonymity of transactions. This includes decentralised exchanges, privacy coins and tools such as tumblers and mixers.
To help identify this illicit activity, the FATF published a report on Red Flag Indicators in September 2020. This report provides an overview of the common red flags which national authorities and organisations like Interpol and Europol have seen in the last three years.
The report will assist service providers in how and where to look for nefarious activities. The report is on the FATF’s website and I encourage you all to read it, if you’ve not already done so.
To conclude, virtual assets remain firmly in FATF’s sights. More work needs to be done to ensure that the global Standards are operating fully and effectively. We will publish a second review of implementation in June 2021.
We have also committed to update our guidance on virtual assets and service providers. This will address issues such as so-called stablecoins, the travel rule and peer-to-peer transactions.
And we are beefing up our work on digital transformation. We will look broadly at how technology offers opportunities for the public and private sectors to fight money laundering and terrorism financing more effectively. We will look at how technology can speed up customer due diligence, improve risk identification and management, simplify communication with supervisors, and transform the capabilities of law enforcement to make better use of data. We expect to see how technology is helping the private sector, including through the use of artificial intelligence and big data analytics, while ensuring a high level of data protection.
Before handing over to Sandra, I must re-iterate the importance of this dialogue and working together. This is the only way we can become more effective in combatting money laundering, terrorism financing and proliferation financing. Particularly now, in the face of the pandemic, we must increase cooperation, information sharing and dialogue.
Thank you for working with us and for your contribution, and that of the V20, and for this opportunity to join you today. I am genuinely interested in the discussions we will have over the next three days, in the lead up to the G20 Summit this weekend.