FATF TRAVEL RULES AND ‘DeFi’ PLATFORMS

WHAT EVERY CRYPTOCURRENCY EXCHANGE NEED TO KNOW!

Financial Action Task Force (FATF) is a body responsible for setting up policies to combat money laundering, and terrorist financing worldwide. The body regularly sets out rules regarding cryptocurrencies and blockchain-based assets. Some of them include: Virtual Assets Red Flag Indicators being used for Suspicious Activity Reports (SARS) and the ‘Travel Rule’.

What is FATF Travel Rule?

The FATF Travel Rule is a regulation based on the U.S’s Bank Secrecy Act (BSA) which aims to report and record suspicious transactions that exceeds a specific threshold. This rule requires that each payment order of $3000 or more will require the following details of the transactors: name and address of the originator, amount of the payment order, and date of the payment order. This information would be shared amongst cryptocurrency exchanges while processing the transactions.

DeFi

Since Decentralized Finance Platforms, DeFi, permits users to transfer cryptocurrencies directly through the use of software that eliminates a third party, FATF has instructed National Anti-money Regulators to hold the managers of DeFi exchanges to similar compliance expectations from Centralized Exchanges.

In May 2019, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) explained that Decentralized Applications, ‘Dapps’ fall under the same requirements of the Bank Secrecy Act as it applies to centralized exchanges and also noted that the DeFi sector is yet to implement basic Anti Money Laundering (AML) protocols.

On the other hand, in the updated FATF publication, FATF didn’t urge regulations for the software that enables DeFi transactions. According to them, “A DeFi application (i.e., the software program) is not a Virtual Asset Service Provider (VASP) under the FATF standards, However, creators, owners and operators or some other persons who may maintain control or sufficient influence…may fall under the FATF definition of a VASP.

Approaches towards regulating Stablecoins

In the updated FATF guideline, approaches towards stablecoin regulations were given. FATF advised National regulators to apply many of the FATF Travel Rule principles to stablecoins. Stablecoins are a form of cryptocurrency with its value based on a commodity, government-issued currency or other cryptocurrency. FATF claims that if a stablecoin has an operator or issuer, then the entity qualifies as VASP as well.

Regulators’ Corner

According to FATF, many platforms claim to be decentralized, but their daily operations are managed by a person or organization. Hence, regulators are advised not to depend on a platform’s own attestations while interpreting and implementing the Travel Rule widely.

Also, FATF advised all countries that are yet to implement and adopt the Travel Rule, to take action as soon as possible. According to them, “Countries may wish to take a staged approach to enforcement of Travel Rule requirements to ensure that their VASPs have enough time to implement the necessary systems”. They suggested that any exchange that succeeds in complying with the Travel Rule could go ahead to restrict transactions between suspicious exchanges up to a particular financial limit or they could alternatively process transactions from exchanges if they can verify the identities of both the originator and the beneficiary.

Inference from the updated Travel Rule

The implication of the updated Travel Rule guide to cover DeFi is that, it adapts its original expectations for centralized cryptocurrency exchanges and extends same principles into new areas of the industry.

FATF warned that failure to have VASP compliant exchanges in any country would pose a tough decision to international countries on dealing with weak or non-existent implementation. Cryptocurrency exchanges are advised to scrutinize unhosted wallets. Unhosted wallets are a group of digital addresses used for storing private keys outside the conventional exchanges with less oversight.

In addition, exchanges might need to limit their transactions with any cryptocurrency platform including Decentralized platforms that are yet to implement FATF recommendations against illicit finance. This will also include exchanges that are yet to implement the Travel Rule or build an overall compliance program.

Conclusion

Cryptocurrency exchanges who are Virtual Asset Providers must develop AML system, conduct due diligence on customers and check transactions for evidence of illegal money.

Regulators are advised to use blockchain analytic tools to track transactions involving unhosted wallets or completely shun them out of cryptocurrency companies.

To have an experienced guide on compliance policies contact us with: contactus@adforensics.ng and follow our social media platforms for further guide.

The Cyberchain Event 2021

The Cyberchain Event 2021

The Cyberchain Event 2021 which hosted experts in the Blockchain and Cybersecurity space, had our senior partner, Mr Adedeji Owonibi speak on the topic: “The Need for Forensics Experts in a Digital Economy”.

In his speech, he spoke about the different opportunities that the blockchain technology has to offer especially to youths which includes: coding, blockchain gaming, and becoming crypto forensics investigators . He mentioned that the space is still very new and everyone is still learning including the governments around the world and law enforcement agencies.

A&D Senior Partner, Mr. Adedeji Owonibi

He reiterated on the fact that the criminal elements gave the popularity to Bitcoin, hence the need for the ecosystem to be regulated so as to prevent crypto currency related crimes. Going further, he mentioned that anyone could be a victim of these crimes as a result of becoming our own banks, and called on all crypto currency users to take responsibilities and ensure security of our assets.

Conversely, in becoming our own banks, there have been reported cases of cryptocurrency related crimes and the appalling situations victims experience simply because we neither know what to do nor where to report. In addition, the law enforcement agencies and various cooperate bodies involved in crime prevention are yet to understand the technology behind cryptocurrency which makes it pseudonymous, the blockchain technology.

As a result, there is a need for intensive education and trainings for individuals, cooperate bodies, government agencies and law enforcement agencies so as to enable us to be proactive. To make this education easier, A&D Forensics has partnered with Blockchain Intelligence Group (BIG) to bring this training home.

A&D Forensics team at the booth.

While concluding his speech, Mr Adedeji Owonibi expressed that the rate and amount of needed cryptocurrency investigations by law enforcement is becoming alarming, and called on to the bad actors who think that they could easily leverage on cryptocurrencies to note that the transparency in Blockchain will give them out swiftly, whether they use Dexes, swap NFTs or use unhosted wallets, because all are now visible with a click on Crypto Forensic Tools.

He further advised crypto traders to trade clean so that help can be rendered from the industry at needed times.

A&D Snr. Partner with country lead, Okex Nigeria

The Cyberchain 2021 Event also had some lead persons from different exchanges like: Binance, Okex, FTX, Hagglex, Tradefada, Bitmama and community representatives from SIBAN, BNUG, Redswan, UNIC, TPG Hub, Bholdus, CloudFlex etc in attendance.

In another news, the highlights of the Cyberchain Event included a Cybersecurity Hackathon dubbed Cyberthon . Among the finalists were students from Federal University of Technology Minna, Federal University of Technology Akure and others.

A&D Forensics team with the Hackathon winners.

A&D Forensics also encouraged the first place winners by offering to sponsor their training on the Certified Cryptocurrency Investigation Course.

The Certified Cryptocurrency Investigation Course (CCI) and the Certified Cryptocurrency Compliance Specialist(3CS) training equips practitioners with the comprehension and competence to trace and investigate transactions on the Blockchain using various cryptocurrency investigation tools provided on-site at A&D Forensics lab.

To advance your career with this training, register to choose your preferred cohort with the link: https://adforensics.com.ng/cryptocurrency-training/

A&D FORENSICS WILL BE AT THE CYBERCHAIN  EVENT

A&D FORENSICS WILL BE AT THE CYBERCHAIN EVENT

A&D Forensics, the Africa’s Leading Blockchain Intelligence Service Provider is proud to sponsor the Cyberchain Event with the Theme, “Enabling the Digital Economy” at Lagos Oriental Hotel, Lekki Victoria Island, Lagos, Nigeria in November, 2021.

Government Agencies, Exchanges and Financial Institutions are all invited to come, learn and understand cryptocurrency, the dark-sides and how to stay above board at all times,

As a Cryptocurrency Exchange, you will be opportuned to meet with our experts and gain more knowledge on how to boost your compliance programmes and flag cryptocurrency related crimes.

SIT IN ON OUR COLLOQUY

Our Senior Partner and Lead Facilitator, Cryptocurrency Investigations, Mr Adedeii Owonibi will be taking to the stage for ‘“The Need For Forensics Experts in a Digital Economy” on November 20th, 2021.

Visit our booth at the Cyberchain Event and our team will be on ground to answer every question you have.

Kindly visit our website https://adforensics.com.ng/ and follow our social media platforms for further updates