Virtual asset sector remains poorly regulated in many countries: Global financial watchdog

SINGAPORE - The virtual asset sector, which include cryptocurrencies, is at high risk of being exploited for money laundering and terrorism financing activities, the Financial Action Task Force (FATF) said.

Speaking at the close of its plenary sessions in Singapore on June 28, FATF president T. Raja Kumar said the sector remains poorly regulated in many countries.

The global financial watchdog had issued global, binding standards to prevent the misuse of virtual assets for money laundering and terrorist financing.

However, about 75 per cent – or 97 – of 130 countries with significant virtual asset and virtual asset service provider activities, remain only partially or are not compliant with the standards.

FATF said gaps in the global regulatory system have created significant loopholes that can be exploited by criminals, terrorists and rogue regimes.

Said Mr Raja: “Countries urgently need to prevent further abuse by criminals on this sector. Many countries are acting too slow on this, but the reality is we can’t allow terrorists to raise funds or organised crime groups to launder funds in an unregulated space.”

According to FATF standards, countries need to license or register virtual asset service providers and supervise the sector, in the same way it supervises other financial institutions.

Meanwhile, virtual asset service providers are required to implement the same preventive measures as financial institutions, including customer due diligence, record keeping and reporting of suspicious transactions.

They also have to be able to identify and hold “originator and beneficiary information” when making transfers.

FATF said it will publicly identify jurisdictions with a significant stake in virtual assets in order to push for higher standards in the mostly unregulated space.

“We have been exhorting countries to essentially learn from those jurisdictions that have made progress on this front, to then learn off them and essentially take on board best practices to then review the legislation,” said Mr Raja at a press conference held at the end of the plenary sessions.

The watchdog noted that the number of jurisdictions that are compliant or largely compliant with its standards in this area has increased to 33 in 2024, from 25 the year before.

However, many others have not acted with enough expediency.

“The FATF calls on all jurisdictions to act rapidly and fully implement the FATF’s requirements on virtual assets and virtual asset providers,” the watchdog said, adding that it will monitor the situation and ensure countries have support to implement the requirements.

Over two days from June 26, FATF led sessions attended by delegates from more than 200 jurisdictions and observers from international organisations such as the World Bank, International Monetary Fund and United Nations.

The event was held at the Marina Bay Sands Expo and Convention Centre.

Singapore will reach the end of its two-year presidential term at the financial watchdog at the end of June. It has been a member of FATF since 1992.

Mr Raja said Singapore had focused on addressing contemporary challenges in combating illicit finance over its term of presidency.

“The work that we have done on asset recovery, beneficial ownership transparency and virtual assets over the past few years – they all mutually reinforce each other by giving law enforcement and national authorities more tools in this fight.”

He added: “Countries can now lift the veil and find out where criminals are hiding their dirty money, including virtual assets, and go after it to ensure that crime does not pay.”

In November 2023, FATF introduced new requirements for countries to establish asset recovery as a priority, both at the domestic and international levels, and to periodically review their confiscation policies and operational frameworks.

Among other things, countries are to enforce laws which would deprive criminals of assets from a criminal lifestyle, or that exceed their known lawful income.

They are also obliged to recognise one another’s preliminary and final court orders concerning assets subject to confiscation, which FATF said reflect the reality of transnational money laundering investigations.

Singapore has made asset recovery a priority in its national anti-money laundering regime, releasing its first-ever National Asset Recovery Strategy on June 26.

The approach sets out how Singapore will deprive criminals of their illicit funds and assets, remove the financial incentives for criminals to launder their illicit proceeds in Singapore, and return these assets to victims.

At the press conference, Mr Raja announced that FATF members had approved revised criteria for prioritising countries in its International Cooperation Review Group (ICRG) review process.

It could result in countries with anti-money laundering and counter-terrorism financing deficiencies being placed on FATF’s black or grey list automatically.

The black list identifies countries or jurisdictions with serious strategic deficiencies in countering money laundering, terrorist financing, and proliferation financing of weapons of mass destruction.

The grey list is for countries that are actively working with FATF to address the strategic deficiencies.

But the financial watchdog will take into account the challenges faced by the least developed countries, with members that fall into those categories being given more time to work on their action plans, he added.