Three-Quarters of Jurisdictions Partially or Not Compliant With VASP Sector Recommendation, Says FATF

FATF Members Fail to Implement Fundamental Requirements

According to the Financial Action Task Force (FATF), 97 out of 130 jurisdictions “are only partially or not compliant” with Recommendation 15, which commits governments to implement anti-money laundering standards for the virtual asset sector. In its recently released update on virtual assets (VAs) and virtual asset service providers (VASPs), the FATF said the proportion of governments not meeting the recommendation remains identical to that of April 2023.

The so-called Targeted Update reveals that many jurisdictions are struggling to implement the fundamental requirements of Recommendation 15. Specifically, 29% (42 out of 147) have not conducted a virtual asset risk assessment at all, the update revealed. Additionally, more than a quarter of survey respondents were undecided about regulating the VASP sector.

Meanwhile, the update notes that 60% (88 jurisdictions) have decided to permit VAs and VASPs, while 14% (20 jurisdictions) explicitly prohibit VASPs. However, as observed in 2023, the prohibition of VASPs does not necessarily equate to compliance with the FATF recommendation. Regarding the implementation of the travel rule, the FATF states:

Jurisdictions have made insufficient progress on implementing the Travel Rule. Nearly one-third of the survey respondents (30%; 29 of 94), excluding those that prohibit VASPs explicitly (i.e., including those that permit VASPs and those that prohibit VASPs partially), have not passed legislation implementing the Travel Rule.

The 2024 update indicates that even among jurisdictions that have passed Travel Rule legislation, supervision and enforcement remain low. Only 26% (17 out of 65) of jurisdictions have enforced or taken Travel Rule-focused action against VASPs.

FATF Recommends Establishing Regulatory Frameworks

The update meanwhile reiterates the assertion that virtual assets, including stablecoins and anonymity-enhancing cryptocurrencies, are increasingly being used by terrorist organizations and rogue states like North Korea.

To combat this misuse of virtual assets by bad actors, the FATF update recommends that jurisdictions assess and monitor illicit finance risks associated with stablecoins and take mitigating action. Regarding decentralized finance ( defi) platforms, the FATF suggests developing a regulatory framework to capture responsible entities and take appropriate action where necessary.

Additionally, the FATF recommends sharing good practices and remaining challenges with the Virtual Assets Contact Group (VACG) members.

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