As Parliament is set to debate regulation or ban of cryptocurrencies and crypto exchanges during the winter session starting next week, India might have to keep in mind that new global norms are being set on the permission and management of cryptocurrencies, particularly given that money laundering and financing of terrorism would become very easy without coordinated global rules.
The Financial Action Task Force (FATF), the inter-governmental body to check money laundering and terror financing, last month issued updated rules and norms for monitoring and regulation of “virtual assets” (read cryptocurrencies) and “virtual asset service providers” (read crypto exchanges). The new guidelines, which have been circulated among governments, clarify that VAs and VASPs fall within the scope of FATF standards — which means countries will be judged on their performance on the new metrics devised by FATF.
The guidance outlines the “application of the FATF recommendations to countries and competent authorities; as well as to VASPs and other obliged entities that engage in VA activities, including financial institutions like banks and securities broker-dealers, among others”. The idea, it says, is to frame rules for countries to follow that makes it easier to track and intercept money laundering/terror financing (ML/TF). In the absence of global coordination, cryptocurrencies, which remove the bank/financial institutions as intermediary, would make such financial flows outside the ambit of global law-enforcement authorities.
The guidance stresses that governments and central banks are “required to take action to identify natural or legal persons that carry out VA activities without the requisite licence or registration”. This would be equally applicable to countries that have banned crypto as well as those who allow it with regulation and monitoring.
The guidance adds clarity to what is expected of governments as they seek to address this new technology : (1) Clarify thedefinitionsof VA andVASP to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF standards; (2) provide guidance on how the FATF standards apply to stable-coins and clarify that a range of entities involved in stable-coin arrangements could qualify as VASPs under the FATF Standards; (3) provide additional guidance on the risks and tools available to countries to address the ML/ TF risks for peer-to-peer transactions among others.
