Key developments of interest over the last month include:
- United Kingdom: The Payment Systems Regulator has published its interim report on its market review into the supply of card-acquiring services.
- France: The French Observatory for the Security of Payment Means has published a communication on the implementation of strong customer authentication under PSD2.
- Singapore: The Monetary Authority of Singapore has published a consultation paper on a proposed new Omnibus Act for the financial sector.
In this Newsletter:
- Regulatory Developments
- Payment Market Developments
- Surveys and Reports
United Kingdom: PSR publishes interim report on market review into the supply of card acquiring services
On 15 September 2020 the Payment Systems Regulator (PSR) published its interim report on its market review into the supply of card-acquiring services. It examines how competition in the supply of card acquiring services operates, including review of the fees merchants pay for card-acquiring services and the quality of service they receive.
The PSR has tentatively found that the supply of card acquiring services does not work well for small and medium-sized merchants. For large merchants (those which have annual card turnover above £50 million), the PSR has provisionally found that they can access information about providers and assess their requirements and they achieve good pricing outcomes.
The PSR is proposing several potential remedies, including requiring all contracts for card-acquiring services to have an end date, providing a prompt for merchants to shop around, requiring changes to POS terminal contracts to limit their length, ending contracts that auto-renew for successive fixed terms and making it easier to exit POS terminal contracts without incurring exit fees and making it easier for merchants to research and compare prices and options available to them.
The PSR has asked for stakeholder feedback on these provisional findings and potential remedies by 8 December 2020.
France: French Observatory for the Security of Payment Means publishes a communication on the implementation of SCA
On 1 July 2020 the French Observatory for the Security of Payment Means (OSPM) published a communication on the implementation of strong customer authentication (SCA) requirements in France in the context of the COVID-19 crisis.
The OSPM confirmed that the initial migration plan published in 2019 by the French Central Bank remains unchanged, which means that payment service providers are expected to have implemented payment authentication methods complying with SCA obligations in the course of the first quarter of 2021.
The revised steering methods of the migration plan will, however, be detailed in the OSPM’s 2019 annual report, which will be published on 22 September 2020.
Singapore: MAS publishes consultation paper on a proposed new Omnibus Act for the financial sector
On 21 July 2020 the Monetary Authority of Singapore (MAS) published a consultation paper on a proposed new Omnibus Act for the financial sector. The paper seeks to enhance and consolidate the MAS’s regulatory powers over emergent risks relating to digital services, especially those across the financial sector. This paper will be the foundation for a new Act.
This is not an isolated or new effort by the MAS. The Payment Services Act 2019 (PSA) was previously introduced by the MAS in January 2020. It covered both new and traditional payment activities. Building on this, the paper seeks to expand the PSA and the MAS’s regulatory scope to include virtual asset services. It includes harmonising powers and also expanding activities related to digital token (DT) service providers.
The MAS acknowledges the inherently higher money laundering and/or financing of terrorism risks of DT services. The paper, along with the PSA, would seek to provide greater security and transparency as digital transactions, digital banks and FinTech move more mainstream.
See further information here.
United Kingdom: FMLC responds to European Commission consultation on AML and CTF action plan
On 27 August 2020 the Financial Markets Law Committee (FMLC) published a letter which has been sent to the European Commission in response to the action plan for a comprehensive EU policy on preventing money laundering and terrorist financing.
In the letter, the FMLC stressed its concerns regarding the narrow definition of “virtual currencies” in the Fifth Money Laundering Directive ((EU) 2018/843) (MLD5), which in its opinion could lead to unintentional consequences. In relation to provisions which could be further harmonised through future regulation, the FMLC is in favour of the adoption of legal entity identifiers (LEIs), which would increase the effectiveness of the AML framework.
United Kingdom: FCA update on digital sandbox COVID-19 pilot
On 2 September 2020 the FCA launched a new webpage providing an update on its pilot of a digital sandbox aimed to help innovative firms in overcoming challenges resulting from the COVID-19 pandemic. The digital sandbox will provide innovative firms with the ability to test and develop proofs of concept in a digital testing environment around three use cases relating to COVID-19, namely:
- Detecting and preventing fraud and scams.
- Supporting the financial resilience of vulnerable consumers.
- Improving access to finance for small and medium-sized enterprises.
The update reported that the FCA’s three-week DataSprint in July and August 2020 brought together 120 participants from across regulated firms, start-ups, academia, professional services, data scientists and subject matter experts. Those who took part collaborated on developing high-quality synthetic financial datasets to be used by participants in the forthcoming digital sandbox pilot.
Over 50 participants have continued working since the DataSprint, refining and expanding the data assets produced. In the coming weeks, once this work is completed, the FCA will open applications for the digital sandbox.
Europe: EBA launches RegTech industry survey
On 12 August 2020 the EBA launched an industry survey on RegTech consisting of two separate online questionnaires, one to be completed by financial institutions and the other by ICT third party providers. In the questionnaire for financial institutions, the EBA states that in line with its work programme on financial innovation it is conducting analysis in the RegTech area.
The industry survey is aimed at providing the EBA with a better understanding of ongoing activity and at raising awareness of RegTech in the regulatory and supervisory community. The EBA is also looking to identify ways to facilitate the adoption and scale-up of RegTech solutions across the EU.
In the online questionnaires, the EBA defines RegTech as any range of applications of technology-enabled innovation for regulatory, compliance and reporting requirements implemented by a regulated institution (with or without the assistance of ICT third party providers). RegTech solutions falling outside this definition should not be included in the questionnaires.
The consultation period for the survey closes on 30 September 2020.
United Kingdom: FCA consults on extending annual financial crime reporting obligation
On 24 August 2020 the FCA published a consultation paper (CP20/17) on extending its annual financial crime reporting obligation (“REP-CRIM”) to include firms that carry on regulated activities that it considers potentially pose a higher money laundering risk, irrespective of a firm’s revenue threshold. The annual financial crime reporting obligation shows the FCA the potential money laundering risk faced by a firm, based on its regulated activities and the nature of its customers.
The FCA is also consulting on removing two activities from REP-CRIM, which it considers are outside of the scope of the Money Laundering Regulations (MLRs), namely home finance mediation and making arrangements with a view to transactions in investments.
The consultation closes on 23 November 2020. The FCA intends to issue the final rules and publish a policy statement in Q1 2021.
Global: BIS speech on benefits and challenges of RegTech and FinTech
On 21 August 2020 the Bank for International Settlements (BIS) published a speech by Benoît Cœuré, Head of the BIS Innovation Hub, emphasising that RegTech and FinTech are high on the BIS’ agenda and also setting out the potential benefits and challenges that they pose.
The main challenge identified by M. Cœuré relates to the lack of transparency around technological applications. This causes difficulties for both institutions and supervisors when it comes to understanding how undesired events occurred and what steps need to be taken in order to prevent any recurrence. M. Cœuré suggests that these FinTech-related challenges may require regulators to leave their comfort zone and reassess their current supervisory models and resources to ensure continued effective oversight of the banking system.
United Kingdom: Bank of England Governor gives speech on innovation in payments
On 3 September 2020 Andrew Bailey, Governor of the Bank of England (BoE), gave a speech on innovations in payments, in particular stablecoins and digital currencies.
Main points from Mr Bailey’s speech include:
- On stablecoins: For stablecoins to be widely used they must comply with equivalent standards to those that govern other forms of payment. They should meet the standards equivalent to those expected of commercial bank money in relation to stability of value, robustness of legal claim and the ability to redeem at par in fiat money.
- On CBDCs: The speech considers whether a better outcome would be for central banks to directly digitise cash by creating central bank digital currencies (CBDCs). Mr Bailey also notes public policy questions, i.e. who should be responsible for the integrity and security of the digital payments architecture and privacy and data protection issues.
Italy: Government confirms new AML provisions on online KYC
On 14 September 2020 Law Decree No. 76/2020 regarding urgent measures for simplification and digital innovation (the Decree) was converted into Law No. 120/2020 (the Law). The following amendments to the Italian AML legal framework aimed at facilitating and simplifying customer online on-boarding have been confirmed:
- Online KYC and SCA: The Law confirmed the possibility of relying on strong customer authentication (SCA) under PSD2 for AML purposes where certain conditions are met.• Online KYC and SCA: The Law confirmed the possibility of relying on strong customer authentication (SCA) under PSD2 for AML purposes where certain conditions are met.
- Digital identity: The Law aligned the identity assurance level required for relying on the Italian digital public identity (SPID) and the digital identity pursuant to Regulation (EU) No. 910/2014 (eIDAS Regulation) for AML purposes to the definitions set out under the eIDAS Regulation.
- Identification data and ID: The Law confirmed that checking of an ID is no longer required in certain specific cases (e.g. use of a digital identity under the eIDAS Regulation). Also, the ID details (e.g. number, issuance and expiration date) are no longer included in the definition of “identification data” set out under the AML law.
Europe: European Commission report considers MLD4 obligations regarding trusts and similar legal arrangements
On 16 September 2020 the European Commission published a report evaluating whether member states have appropriately identified and made subject to the Fourth Money Laundering Directive all trusts and similar legal arrangements governed under their laws.
The most recent member state notification list was published in April 2020 and constitutes the basis of the analysis in this report. Sixteen member states indicated that no trusts or similar legal arrangements are governed by their laws.
The Commission’s conclusions are that:
- There is no certain analysis in the international anti-money laundering (AML) and counter-terrorist financing (CTF) community of what constitutes a similar legal arrangement to a trust.
- The lack of a common approach does not ensure legal certainty and a level playing field, and might leave loopholes which can be exploited in money laundering schemes.
- A preliminary analysis of the obligations imposed on legal arrangements by member states shows that the aim of establishing a consistent monitoring and registration framework may not yet have been achieved.
- In the area of funds, transparency of beneficial ownership information may vary from one member state to another based on their legal form.
Europe: ECB highlights release of documentation and guidance for new Cyber Information and Intelligence Sharing Initiative framework
On 15 September 2020 the European Central Bank (ECB) published a press release referring to the publication by the Euro Cyber Resilience Board for pan-European Financial Infrastructures (ECRB) of documentation and guidance relating to the framework for the Cyber Information and Intelligence Sharing Initiative (CIISI-EU). CIISI-EU was established by members of the ECRB in February 2020 and is a multilateral initiative bringing together public and private entities to share strategic, operational and tactical cyber information aimed to help them better tackle any potential cyber threats.
The ECB has published an article providing more detailed information on CIISI-EU and its framework. The ECRB’s goal is to inspire other entities, communities, and jurisdictions to consider building their own cyber information and intelligence sharing initiatives.
United Kingdom: Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
On 15 September 2020 the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 were published on, together with an explanatory memorandum.
The Regulations amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) to implement amendments made by the Fifth Money Laundering Directive (MLD5) to the Fourth Money Laundering Directive (MLD4). The Regulations also make amendments to the MLRs 2017 relating to HMRC’s Trusts Registration Service, the reporting of discrepancies in beneficial ownership information, the use of confidential information, and customer due diligence and enhanced due diligence.
United Kingdom: FCA finalises guidance on branch and ATM closures or conversions
On 14 September 2020 the FCA published finalised guidance on branch and ATM closures or conversions. The guidance applies to regulated firms that operate (or have agents which operate) branches or ATMs. It applies when such a firm proposes or takes a decision to close physical sites, or to convert a free-to-use ATM to pay-to-use.
The FCA expects firms to:
- Keep it informed of any plans for closures or conversions before any final decisions are made.
- Before making a final decision, provide a clear summary of the analysis of needs of customers currently using the sites, the impact on those customers, and alternatives that are, or could reasonably be, implemented if they go forward the proposals.
- Where they decide to implement their closure or conversion proposals, clearly communicate information to customers at least 12 weeks before the proposals are implemented.
The guidance applies from 21 September 2020.
Europe: ECON adopts draft report on Digital Finance and FinTech action plan
On 11 September 2020 the European Parliament’s Economic and Monetary Affairs Committee (ECON) published a press release announcing that it has adopted its draft report on Digital Finance.
The press release highlights the following issues raised in the report:
- On Cryptoassets. There should be a comprehensive pan-EU open-ended taxonomy for new products, as well as for a common monitoring and supervision framework.
- On Cyber resilience. There should be a common approach to cyber resilience of the financial sector. ECON calls for legislative changes in the area of ICT and cybersecurity requirements for the EU financial sector.
- On Data. The free flow of data within the EU is necessary to scale up innovative finance.
United Kingdom: FCA to carry out second survey of firms’ financial resilience
On 10 September 2020 the FCA published a statement announcing that it will be conducting a second survey of firms to help it understand the change in their financial resilience resulting from the COVID-19 pandemic.
The FCA issued the first phase of its COVID-19 impact survey in June 2020 to around 13,000 firms. The FCA intends to email the survey to the relevant firms during the period of 16 September to 22 September 2020. Completion of the survey is mandatory.
United Kingdom: FCA’s quarterly consultation paper and amendments to open banking identification requirements (eIDAS certificate)
On 4 September 2020 the FCA published its 29th quarterly consultation paper (CP20/18).
Among others, the FCA consults on amending Article 34 of the retained EU law version of Commission Delegated Regulation (EU) 2018/389, which sets out regulatory technical standards (RTS) on strong customer authentication (SCA) (SCA-RTS) (UK RTS) to allow alternative means of identification.
Under the Payment Services Regulations 2017 providers of account information and payment initiation services (third-party providers (TPPs)) are required to identify themselves to account servicing payment service providers (ASPSPs) to access customer’s online payment account data and initiate payments from such accounts.
The SCA-RTS set out the standards of communication required and regulate access by TPPs to customer accounts held with their ASPSPs. The requirement to rely on an eIDAS certificate for identification will be carried across into the UK RTS and the eIDAS Regulation will be onshored at the end of the Brexit transitional period.
Without intervention TPPs in the UK will no longer be able to access their customers’ account data held with ASPSPs after the transition period ends. To avoid disruption to open banking services, the FCA proposes to change the regulatory requirements to allow for the use of an alternative form of identification.
The draft FCA instrument making the proposed changes is set out in Appendix 3 to CP20/18.
Comments can be made on these proposals until 5 October 2020.
United Kingdom: FCA Market Watch issue 65 newsletter on market conduct and transaction reporting issues
On 7 September 2020 the FCA published issue 65 of its Market Watch newsletter on market conduct and transaction reporting issues.
Among others, it covers:
- Confidentiality of FCA information requirements. The FCA reminds firms that its information requests sections 122B, 165(1) and 173 of the Financial Services and Markets Act 2000 relating to insider trading and suspicious activity should be kept strictly confidential and not be discussed with staff outside Compliance without its prior agreement. It explains that its main focus is avoiding the inappropriate dissemination of knowledge of its enquiries.
- Legally privileged documentation. The FCA states that it has recently seen material relating to firms’ clients that could be subject to legal professional privilege (LPP) being submitted as an attachment to a suspicious transaction report (STOR) or market observation. It reminds firms that they should not submit any material that could be subject to LPP alongside a STOR or market observation.
Europe: EBA responds to European Commission call for advice on future EU AML and CTF framework
On 10 September 2020 the EBA published its response to the European Commission’s March 2020 call for advice on the future EU anti-money laundering (AML) and counter-terrorist financing (CTF) framework.
The report contains the EBA’s comprehensive advice on how the EU legal framework should be reinforced to tackle weaknesses linked to divergent national approaches and gaps in the EU money laundering (ML) and terrorist financing (TF) defences.
The EBA recommends that the Commission establish a single rulebook to:
- Harmonise the EU legal framework in a directly applicable Regulation where evidence suggests that divergence of national rules and practices adversely impacts the prevention of the use of the EU’s financial system for ML and TF purposes.
- Strengthen aspects of the Fourth Money Laundering Directive (MLD4) where existing provisions are not sufficiently forceful or specific.
- Review the list of obliged entities currently within the scope of the EU’s AML and CTF regime.
- Clarify provisions in sectoral financial services legislation to make sure that they are compatible with the EU’s AML and CTF objectives.
United Kingdom: New PRA webpage on temporary permissions regime
On 1 September 2020 the PRA published a new webpage on the temporary permissions regime (TPR), summarising its approach to the TPR and highlights the key requirements for UK branches of firms.
The webpage provides information on the following:
- The PRA’s supervisory approach to firms.
- Threshold conditions.
- Financial Services Compensation Scheme (FSCS) protection.
- Senior Managers and Certification Regime (SM&CR).
- Status disclosure.
The TPR is due to come into force at the end of the transition period (which is currently 11 pm on 31 December 2020).
United Kingdom: PRA Dear CEO letter on temporary permissions regime
On 2 September 2020 the Department for Business, Energy & Industrial Strategy (BEIS) opened a call for evidence on the UK government’s future international regulatory co-operation (IRC) strategy. IRC concerns the arrangements between countries to promote coherent design, monitoring, enforcement and evaluation of regulation, as well as unilateral efforts to account for the international environment in domestic rulemaking and the impacts of regulations beyond borders.
United Kingdom: PRA Dear CEO letter on temporary permissions regime
On 1 September 2020 the PRA published a Dear CEO letter reminding firms to be operationally ready for the temporary permissions regime (TPR).
United Kingdom: Launch of new Bank of England research agenda
On 1 September 2020 the Bank of England (BoE) published a new webpage setting out its new agenda for research and a set of priority topics for 2021.
The agenda is set out in areas which relate to the following:
- Monetary toolkit.
- Open economy and prudential framework.
- Future of finance.
- Transformed world.
United Kingdom: OFSI frozen assets reports due 16 October 2020
On 3 September 2020 the Office of Financial Sanctions Implementation (OFSI) reminded those who hold or control funds or economic resources belonging to, owned, held or controlled by a designated person that they are required to file a report to this effect with OFSI by Friday 16 October 2020.
Each report should value the assets as of close of business on Wednesday 30 September 2020.
United Kingdom: FCA updates and restructures temporary permissions regime webpage
On 20 August 2020 the FCA updated and restructured its webpage on the temporary permissions regime (TPR).
The FCA has created a number of sub-webpages covering the following TPR-related topics:
- Firms and investment funds that can use the TPR.
- Rules that will apply to firms and fund operators in the TPR.
- The notification process for firms.
- Considerations for firms leaving the TPR.
- The notification process for funds.
- TPR fees.
- Financial services contracts regime (FSCR).
United Kingdom: HM Treasury approves JMLSG final guidance reflecting amended MLRs 2017 and final guidance on cryptoasset businesses and pooled accounts
On 19 August 2020 the Joint Money Laundering Steering Group (JMLSG) published a press release announcing it has received HM Treasury ministerial approval for the final guidance it published in June and July 2020, namely:
- Final amended versions of Part I, Part II and Part III of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance, which take account of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.
- Final versions of new AML and CTF guidance on cryptoasset businesses and pooled client accounts (PCAs).
Payment Market Developments
United Kingdom: Global fintech platform Nium receives UK EMI licence
On 31 August 2020 Nium, a global financial technology platform, received its electronic money institution (EMI) licence from the FCA. It will now have the ability to issue e-money and provide cross-border digital payments in the UK.
Switzerland: Stablecoin used for e-commerce payment as world’s first ever bank-issued stablecoin
On 27 August 2020 Sygnum Bank’s digital Swiss Franc was used to make a payment on the site of Swiss online retailer Galaxus. The transaction was enabled by a digital currency platform provider Coinify from Denmark. This transaction was a first ever in the world with the bank-issued stablecoin called digital Swiss Franc. When used for e-commerce payments, no intermediaries are involved and the transactions happen in real-time with stable values.
United Kingdom: Volopa announces launch of its money transfer service Oyamoney
On 25 August 2020 a fintech company Volopa announced the launch of its new mobile money transfer service “Oyamoney”. The platform is designed for the 1 million people who make up the UK based Nigerian community. The service was developed in collaboration with members of the Nigerian community and was founded with a vision to make sending money to Nigeria faster, fairer and safer.
Denmark: Lunar picks open banking platform Nordic API Gateway to leverage PSD2
On 2o August 2020 open banking platform Nordic API Gateway announced the addition of challenger bank Lunar to the list of Nordic banks which are taking advantage of the open banking technology. In the coming months, Lunar is set to activate multi-banking features and enable payments across Denmark, Sweden and Norway with Nordic API Gateway.
Ireland: Moneyhub extends open finance coverage
On 25 August 2020 a market leading open finance data and intelligence platform Moneyhub expanded its solutions in Ireland as part of its digital efforts aimed at further developing its business across Europe. Allied Irish Bank (AIB), Bank of Ireland, First Trust, and Ulster Bank are among the new additions which allow Moneyhub’s enterprise clients to offer customers access to their financial data.
United States: ConsenSys acquires J.P. Morgan’s blockchain platform Quorum
On 25 August 2020 ConsenSys announced the acquisition of Quorum, an enterprise-variant of the Ethereum blockchain developed by J.P. Morgan. ConsenSys will now merge its existing protocol engineering roadmap with Quorum and all Enterprise Ethereum protocol technology at the firm will fall under the ConsenSys Quorum brand. J.P. Morgan will be a customer of ConsenSys’ features and services deployed on Quorum as well as serving as a strategic investor.
Brazil: Central bank announces CDBC rollout in two years
On 4 September 2020 the president of Brazil’s central bank announced that he expects to launch a central bank digital currency (CDBC) before 2023. The president stated that the central bank had already undertaken measures to modernise the Brazilian financial system, including in relation to the country’s PIX instant payment system and open banking.
United States: Google launches Google Maps payments feature
On 4 September 2020 Google announced its plans to launch a new solution to pay for parking in Google Maps, which is currently live in Austin, Texas. The feature is a result of a partnership between Google and parking app Passport and allows users to pay for parking directly in Google Maps. Users can either pay via Google Pay or go to a payments site in their browser.
Australia: NAB launches no-interest credit card
On 10 September 2020 National Australia Bank (NAB) launched an alternative to third party buy-now-pay-later offerings with the launch of an interest-free credit card. The NAB StraightUp Card provides access to staged credit limits up to a maximum of $3,000 for a flat monthly fee of between $10-$20. Customers don’t pay the monthly fee if the card is not used and there are no other fees or charges.
Global: Mastercard launches CBDC testing platform for central banks
On 9 September 2020 Mastercard announced the launch of a proprietary virtual testing environment for central banks to evaluate CBDC use cases. The platform enables the simulation of issuance, distribution and exchange of CBDCs between banks, financial service providers and consumers.
Surveys and Reports
Venezuela: Chainalysis report shows healthy crypto usage
On 27 August 2020 a blockchain analytics firm Chainalysis published a new Latin America report according to which the Venezuelan government’s push to create a cryptocurrency-centric economy appears to be producing effects. The push led Venezuela ranks to third in the world for crypto adoption, according to Chainalysis metrics, behind Ukraine and Russia. The new data is seen as a reflection of the society so sick of hyperinflation that citizens are willing to turn to bitcoin “as a haven”.
On-chain data suggests that Criptolago, an exchange owned by the Venezuelan state of Zulia and officially approved by the government, is mostly being used by Venezuela’s elite with the majority of its bitcoin transactions being over $1,000. Criptolago’s bitcoin transfer volume in July 2020 was 13 times higher than it was one year ago.
Global: BIS reports on central bank digital currency initiatives around the world
On 24 August 2020 the Bank for International Settlements (BIS) published a working paper according to which countries with digitised and innovative economies are more likely to be developing central bank digital currency (CBDC) projects, while those with a larger informal economy are tending to focus on creating retail CBDCs.
In addition to identifying the relationship between CBDC development and economic context, the paper’s key findings include:
- None of the projects surveyed seeks to replace cash; they all aim to offer a digital complement;
- An increasing number of central banks are considering hybrid or intermediated architecture where the private sector manages customer-facing activity; and
- Access frameworks tend to be based on account identification rather than allowing for token-based anonymity.
India: Digital payments market likely to grow threefold to Rs 7,092 lakh crore by 2025
On 23 August 2020 RedSeer Consulting published a report published according to which digital payments in India are expected to grow over threefold to Rs 7,092 lakh crore by 2025 due to government policies around financial inclusion and growing digitisation of merchants. The report provides that the digital wallets will continue to play a key role in the growth of digital payments with the continuous increase in both frequency of transactions and the size of the user base.
RedSeer predicts that the payment gateway aggregator market in India, which is currently estimated to be at Rs 9.5 trillion, is expected to grow by 2.4 times driven by large value transactions.
COVID-19 is also seen as a catalyst to digital payments across India. The digital payments share of grocery stores increased to 75 per cent due to COVID-19.
Global: FATF identifies red flag indicators of money laundering and terrorist financing associated with virtual assets
On 14 September 2020 the Financial Action Task Force (FATF) published a report on virtual assets (VAs): red flag indicators of money laundering and terrorist financing.
The red flag indicators of suspicious VAs (also known as cryptoasset) activities or possible attempts to avoid law enforcement detection that are set out in the report are based on more than 100 case studies contributed by FATF global network members.
Key indicators identified in the report include:
- Technological features that increase anonymity, such as the use of peer-to-peer exchanges websites, mixing or tumbling services or anonymity-enhanced cryptocurrencies.
- Geographical risks: criminals can exploit countries with weak, or absent, national measures for VAs.
- Transaction patterns: if irregular, unusual or uncommon, this can suggest criminal activity.
- Transaction size, for example, where the amount and frequency have no logical business explanation.
- Sender or recipient profiles: unusual behaviour can suggest criminal activity.
- Source of funds or wealth that can relate to criminal activity.