Stalling on Crypto Regulation A Global Challenge- FATF

A Regulatory Gap- Less Than 30% of Jurisdictions Have Crypto Regulations

The global cryptocurrency market is booming, but regulations have not kept pace. This lack of oversight creates opportunities for criminals and terrorists to exploit virtual assets for money laundering and terrorist financing.

According to the Financial Action Task Force (FATF), an international organization that combats money laundering and terrorist financing, as of June 2023, fewer than 30% of jurisdictions worldwide had begun regulating the cryptocurrency sector. This information comes from a FATF report titled Statuses of Implementation of Recommendation 15 by FATF Members and Jurisdictions with Materially Important VASP Activity.

This report highlights the slow adoption of measures aimed at curbing money laundering and terrorist financing through cryptocurrencies. The report emphasizes the need for jurisdictions to implement regulations that:

  • License or register virtual asset service providers (VASPs)
  • Conduct reviews of VASP business practices, products, and technology

The FATF’s Call to Action- Closing the Regulatory Gap

The FATF President, T. Raja Kumar, emphasizes the urgency for a global response. He describes virtual assets as akin to water that can easily flow to jurisdictions with lax regulations. Criminals and terrorists exploit these gaps to engage in regulatory arbitrage, essentially choosing jurisdictions with the weakest oversight.

The FATF report serves as a call to action for countries to take the issue of crypto regulation seriously. It highlights the risks associated with a largely unregulated market and stresses the need for international cooperation.

Specific Examples of Crypto Misuse

The report cites concerning examples of how cryptocurrencies are being misused, including:

  • North Korea’s alleged theft and laundering of virtual assets to fund weapons of mass destruction programs.
  • The increasing use of cryptocurrencies by terrorist groups to raise and move funds.
  • The use of cryptocurrencies as the almost exclusive payment method for ransomware attacks.

These examples demonstrate the likely dangers associated with a lack of regulation in the cryptocurrency market.

Challenges of Global Crypto Regulation

While FATF recommendations are not mandatory, jurisdictions that do not comply can face significant consequences. These could include a decline in their credibility ratings and possible isolation from the global financial system.

The FATF report assesses compliance across various criteria, including:

  • The licensing of VASPs
  • Supervisory inspections of VASPs
  • Implementation of the travel rule, which requires crypto service providers to collect and share information on transactions above a certain threshold.

While some jurisdictions, like South Africa, are making progress in licensing crypto platforms, many others are lagging behind. Jurisdictions like India, Singapore, and several European countries are still undergoing assessment, while others have made minimal efforts. North Korea remains blacklisted by FATF, and Russia’s membership was suspended in February 2023.

These challenges highlight the complexity of establishing a global regulatory framework for cryptocurrencies. However, the likely risks associated with a lack of regulation demand continued efforts to bridge the gap.


FATF Compliance Levels (as of June 2023)

Criteria Description
Legislation/Regulation Enacting laws or regulations requiring VASP licensing/registration
VASP Registration/Licensing Registering or licensing VASP businesses
Supervisory Inspections Conducting inspections of VASP operations
Enforcement Actions Taking action against non-compliant VASPs
Travel Rule Implementation Implementing the “travel rule” for information sharing*1lsm4j1*_up*MQ..*_ga*NjMxODYyMDM3LjE3MTE2MjA2OTg.*_ga_VM3STRYVN8*MTcxMTYyMDY5OC4xLjAuMTcxMTYyMDY5OC4wLjAuMA..

Maxwell Peterson

Maxwell Peterson is a distinguished cryptocurrency expert, hailing from San Francisco, California. He holds a Bachelor of Science in Computer Science from Stanford University and a Master's in Financial Technology from the University of Edinburgh. His passion for blockchain technology and its potential to revolutionize the financial industry has driven him to become a leading voice in the cryptocurrency community. Maxwell is committed to making complex financial concepts accessible to a broader audience, dedicating his career to educating people about the benefits and intricacies of cryptocurrencies.

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