FATF Report Highlights Loopholes in Crypto Regulation

A failure by the international community to enforce stricter regulations on cryptocurrency companies has allowed criminals to exploit major loopholes, according to the Financial Action Task Force’s (FATF) 2023-24 annual report released on February 4th.

T. Raja Kumar, who served as FATF president until June 30, emphasized the urgent need for countries to follow FATF guidelines regarding virtual assets and virtual asset service providers (VASPs) in order to curb illicit financial activities.

“Many countries have yet to fully implement the FATF’s requirements on VASPs. This leaves significant loopholes that criminals and terrorists exploit in the VASP space,” Kumar stated in a message included in the newly published report.

During his tenure from 2022 to 2024, one of Kumar’s final acts as president was overseeing the publication of an FATF update assessing global compliance with its VASP regulations, which were first introduced in 2019. The FATF recommendations mandate that jurisdictions establish stringent oversight mechanisms for VASPs, including licensing and regulation by competent national authorities.

The FATF’s July 2024 update reviewed 130 country assessments conducted since the 2019 publication of the VASP recommendation. The findings revealed that 97 jurisdictions—equivalent to 75%—were deemed either ‘partially compliant’ or ‘not compliant’ with FATF’s VASP regulations. This statistic remained unchanged from 2023, underscoring a lack of progress in global adherence.

Under Kumar’s leadership, FATF took several steps to enhance regulatory oversight of VASPs. “For the first time, the FATF published the list of jurisdictions with materially important VASP activity and the steps they have taken, to encourage and accelerate global implementation of the FATF’s requirements,” he noted.

Additionally, FATF has actively promoted the swift and effective implementation of its regulatory standards in key international forums, including the G20 and G7. “In addition, the FATF continues to advocate the timely and effective global implementation of FATF’s requirements at major international forums, such as the G20 and G7,” Kumar stated.

The report underscores the persistent regulatory gaps in the oversight of cryptocurrency-related financial activities, highlighting the need for immediate action to close loopholes that criminals continue to exploit.

By fLEXI tEAM