We welcomed the long weekend last week by concluding an eventful webinar hosted by The Regulatory and Compliance Sub-Committee, and the Digital Exchange Chapter of the Blockchain Association of Singapore. The first part of the intense and insightful discussion was focused heavily on the draft guidelines that were released by Financial Action Task Force (FATF) regarding Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs) earlier this year, whereas for the second part of the discussion, the panelists reiterated some AML and CFT controls for Digital Payment Token (DPT) service providers.
The FATF has set out some key areas of proposed changes in the consultation paper, which includes the treatment of stablecoins, P2P Transactions, Risk Factors on VAs and VASPs, and the Travel Rule concerning the information sharing on cryptocurrencies.
With Stablecoins as the first key discussion, FATF has proposed that stablecoins to be subjected to AML/CTF controls, and distinguished Stablecoins into Centralised Stablecoins and Decentralised Stablecoins under the latest draft guidance, with the latter, potentially carrying greater AML risks due to the absence of identifiable developer or governance body. With these points in mind, the panelists had feedback and agreed on the need to separate the terms into centralised and decentralised stablecoins as proposed, and that the stablecoins should be left to the Central Banks, instead of it being privately issued.
Peer-to-peer Transaction (P2P Transaction)
Risks emerging through P2P transactions is definitely a concern if it grows into a larger scale, given that the transactions are performed without the role of any VASP or obliged entity. Branson from ECXX, shared that they will try to put in place the travel rules however this alone, is definitely not an easy implementation. Also, having VASPs consider the extent to which their customers engage in P2P transactions, is going to be an onerous task as anyone would have transacted between unhosted wallets, the main question therefore will be how in-depth or to what extent should the information be collected.
Risk Assessment of VAs
Moving on to the next topic on the risk assessment relating to VAs and VASPs, the panelists have feedbacked and highlighted several concerns on the new FATF prescriptions to impose several additional measures for VASPs to consider in assessing the VAs such as the number of jurisdictions (how many countries) of users trading the VAs, market share in each jurisdiction, and the extent to which the VAs is used for cross-border payments. While the panelists agreed that it is vital and relevant to conduct risk assessment and due diligence on the VAs before being listed on the exchanges, they pointed out their thoughts and concerns on the overly prescriptive nature of this exercise and the practicality in collecting some of the above-mentioned information as this would often than not, require more record-keeping and additional compliance costs to most entities.
Apart from the above-mentioned key concerns, the panelists went on to discuss the definition of VAs and VASPs, FATF’s expansive view on the impact of Decentralised Finance (DeFi), and also a tad more in-depth on the travel rule. Talking about FATF’s expansive view, Chye Kit agreed that FATF’s view is in the right direction as it targets activity-based. The use of automated processes does not relieve the controlling party of any responsibility for VASP obligations. In the event where something goes wrong, we cannot hold fault against a machine or a smart contract, ultimately, there must be someone behind it, be it a company or a group of people. Without these considerations in place, the investor protection issue will surface. As the panelists move on to talk about the travel rule, they covered a few pointers on the information required for domestic and cross-border transfers, principles of travel rule, due diligence on counterparty of your transfers, and the information required to obtain if transfers are happening through unhosted wallets where originator and beneficiary’s information are required.
To find out more about what the panelists discussed in-depth on the latest FATF guidelines, you can watch the full webinar here. The Blockchain Association of Singapore is also currently gathering valuable industrial feedback and views, which will be submitted to FATF. We would like to warmly welcome all useful feedback from the audience and kindly submit them to firstname.lastname@example.org.
About Cynopsis Solutions
Founded in 2014 and headquartered in Singapore, Cynopsis Solutions offers RegTech solutions designed to digitise and automate Compliance and regulatory processes, in particular know-your-customer, anti-money laundering, and counter-terrorism financing. Cynopsis Solutions’ accolades include MAS FinTech Awards (2018), RegTech100 (2018, 2019) and Financial Times Top 50 High Growth Companies in Asia-Pacific.
Our end-to-end KYC/AML solutions are designed according to the global FATF recommendations, applicable to more than 180 jurisdictions and is already helping more than a thousand B2B customers in the Banking, Financial Services, FinTech and Cryptocurrency, Professional Services and Gaming sectors globally.