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  • Financial Action Task Force Report on Stablecoins

    07/07/2020
    The Financial Action Task Force has published a report on issues of anti-money laundering and counter-terrorism financing in relation to global stablecoins and stablecoins. The report was mandated by the G20 in October 2019, when it also published its own report on the impact of global stablecoins. The FATF uses the term "so-called stablecoins" in its report to avoid endorsing the use of the phrase "stablecoins", which it views as a marketing term used by promoters of such coins. The term "so-called stablecoins with the potential for mass production" refers to global stablecoins. The FATF has, in parallel, published a 12-month review of its revised FATF standards on virtual assets and virtual asset service providers setting out areas in which the FATF intends to provide updated guidance to cover newly identified risks and provide clarifications.
     
    The FATF's stablecoins report provides an overview of the key money laundering and terrorist financing risks of stablecoins, which include:
     
    i.the lack of customer identification within many virtual asset and peer-to-peer platforms; virtual asset service providers are subject to FATF AML/CTF standards for certain financial activities involving virtual assets; note that the same does not apply to peer-to-peer providers who may choose not to use a VASP;
    ii.the use of stablecoins in cross-border transactions, which may involve complex infrastructures and multiple parties, making responsibility for AML/CTF compliance and supervision unclear in cases where the transactions do not involve a VASP;
    iii.the ability for money laundering networks to quickly exchange stablecoins for virtual assets or fiat currencies, allowing them to layer illicit funds and disguise the true origins of the funds within a short space of time; and
    iv.the potential for mass adoption of stablecoins, particularly due to their potential for price-stability, which would enhance criminals' ability to use stablecoins as a means of exchange.
     
    The report observes that the revised FATF standards are generally sufficient to tackle many of the AML/CTF risks applicable to stablecoins, in particular by placing AML/CTF obligations on the businesses (including VASPs) that act as intermediaries for stablecoins between individuals and the financial system. However, the FATF notes certain residual risks, which it intends to monitor going forward, including: (i) the risks of disintermediated, anonymous peer-to-peer stablecoin transactions via unhosted wallets (which the FATF intends to consider further in a new 12-month review of its revised standards, due to be completed by June 2021); (ii) the risks of weak AML/CTF regulation by certain jurisdictions, which bad actors may seek to take advantage of through regulatory arbitrage; and (iii) the risks of "decentralized" governance structures, under which the entity responsible for creating a stablecoin would be dissolved upon the stablecoin's launch, meaning AML/CTF protections would need to take effect prior to release.
     
    The FATF urges all countries and the private sector to adopt the relevant revised FATF Standards and intends to further promote the implementation of the Standards. The FATF also states that it will produce tailored guidance for jurisdictions on the risk-based approach to AML/CTF regulation of so-called stablecoins, including the tools needed to supervise so-called stablecoins and the types of so-called stablecoin proposals that warrant prohibition.
     
    View the FATF's report on so-called stablecoins
     
    View details of the FATF's 12-month review of the revised FATF standards.
     
    View details of the G7's report on the impact of global stablecoins.
     
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