The Financial Action Task Force (FATF) sets global standards for countries to fight money laundering (ML) and terrorist financing (TF) in crypto, requiring Virtual Asset Service Providers (VASPs) like exchanges to follow Anti-Money Laundering (AML) rules, including customer due diligence (CDD) and reporting suspicious transactions, most notably the "Travel Rule" for sender/receiver info on transfers over $1,000/€1,000, aiming to bring the crypto sector into the regulated financial system.
FATF's Role in Crypto
- Global Standards: FATF develops Recommendations that countries must implement to combat financial crime, extending these to virtual assets (VAs) and VASPs.
- Risk Mitigation: It identifies risks of VAs being used for ML/TF and pushes for measures like licensing, registration, and supervision of VASPs.
- Guidance for VASPs: FATF provides guidance on applying AML/CFT measures, covering definitions, stablecoins, peer-to-peer (P2P) risks, and the Travel Rule.
Key Requirements & Rules
- Travel Rule (Recommendation 16): Requires VASPs to share originator and beneficiary information for virtual asset transfers above a certain threshold (typically $1,000/€1,000).
- Customer Due Diligence (CDD): VASPs must identify and verify their customers, just like traditional banks.
- Suspicious Transaction Reporting (STRs): VASPs must detect and report suspicious activities to Financial Intelligence Units.
Why It Matters
- Legitimizes Crypto: By implementing FATF standards, jurisdictions bring crypto activities into the regulated financial perimeter, making them safer for mainstream adoption.
- Prevents Illicit Use: It helps stop criminals from using crypto for money laundering, terrorist financing, and sanctions evasion.
- Harmonization: Creates a consistent global approach, though implementation varies by country.
