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Virtual Assets Now Part of FATF Glossary, Global Regulations may take A Year

The Financial Action Task Force (FATF), the global money laundering watchdog, added “Virtual assets” and “Virtual Asset service providers” definitions to its glossary in “The FATF Recommendations”.

The France-based intergovernmental body founded in 1989 to develop policies for tackling money laundering, provides recommendations to combat money laundering and the financing of terrorism and proliferation internationally. The G20 had asked FATF to provide assistance with regulation of cryptocurrency earlier this year. 

The FATF Definitions

FATF defines crypto currencies, tokens or digital assets such as Bitcoin as Virtual assets and the exchanges, ICOs, digital wallet providers as service providers. 

Virtual Assets

“A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations.”

The FATF Recommendations

Virtual Asset Service Providers

Virtual asset service provider means any natural or legal person who is not covered elsewhere under the Recommendations, and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:
i. exchange between virtual assets and fiat currencies;
ii. exchange between one or more forms of virtual assets;
iii. transfer of virtual assets;
iv. safekeeping and/or administration of virtual assets or instruments
enabling control over virtual assets; and
v. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

The FATF Recommendations

Crypto Regulations by June 2019

According to a Reuters report Friday, FATF is planning to formulate its first set of governing rules and guidelines that govern cryptocurrency industry by June 2019.

However, in a statement released by the global watchdog, the FATF recommends that jurisdictions should ensure virtual asset service providers are subject to AML/CFT regulations, such as conducting customer due diligence including ongoing monitoring, record-keeping, and reporting of suspicious transactions. 

FATF also suggests that countries finding virtual assets risky, and willing to put a ban on them are free to do so.

While FATF recommends monitoring service providers, they do not suggest that service providers such as exchanges are responsible for stability or consumer/investor protection safeguards. 

The development was first reported in India by Varun Sethi aka @Blockchainlaw91 on twitter

What this means for India?

India is an active member of FATF and our currency regulator the Reserve Bank of India has time and again ensured that the regulations recommended by FATF are implemented in our country. 

For the subject of cryptocurrency, RBI in its research has quoted FATF several times. It is likely that RBI and the government of India will take note of FATF’s recommendations. However, we cannot be certain which direction they will choose to go to.

The FATF has excluded National currencies from its definition of Virtual assets, hence if India decides to create an RBI backed Digital currency, it may very well be out of the regulations recommended by FATF for Bitcoin and other cryptocurrencies. For now, we must wait for the Garg Committee to present its recommendations. 

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