India will have to align crypto action with latest FATF norms – Times of India

NEW DELHI: As Parliament moves to debate and discuss regulation or ban of cryptocurrencies and crypto exchanges in parliament from next week, India might have to keep in mind that new global norms are being set on the permission and management of cryptocurrencies, particularly given that money laundering and financing of terrorism would become very easy without coordinated global rules.
FATF has last month issued updated rules and guidelines for the monitoring and regulation of “virtual assets” (read cryptocurrencies) and “virtual asset service providers” (read, exchanges). Their new guidelines, which have been circulated among governments clarify that VAs and VASPs fall within the scope of FATF standards — which means countries will be judged on their performance on the new metrics devised by the FATF.
The guidance outlines the “application of the FATF Recommendations to countries and competent authorities; as well as to VASPs and other obliged entities that engage in VA activities, including financial institutions such as banks and securities broker-dealers, among others.” The idea, it says, is to frame rules for countries to follow that makes it easier to track and intercept money laundering/terror financing (ML/TF). In the absence of global coordination, cryptocurrencies, which remove the bank/financial institution as an intermediary, would make such financial flows outside the ambit of global law enforcement authorities.
“VASPs … have the same full set of obligations as financial institutions and designated non-financial businesses and professions.” The guidance says. Therefore “countries should apply all of the relevant measures under the FATF Recommendations to VAs, VA activities, and VASPs.”
The Guidance stresses that governments and central banks are “required to take action to identify natural or legal persons that carry out VA activities without the requisite license or registration.” This would be equally applicable to countries that have banned crypto as well as to those who allow it with regulation and monitoring.
In addition, FATF rules say only governments are “competent authorities” to monitor crypto.
The October 2021 updated guidance adds greater detail and clarity to what is expected of governments as they seek to address this new technology which is both an opportunity and a threat. “(1) clarify the definitions of VA and VASP to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as another financial asset), (2) provide guidance on how the FATF Standards apply to stable-coins and clarify that a range of entities involved in stable-coin arrangements could qualify as VASPs under the FATF Standards, (3) provide additional guidance on the risks and the tools available to countries to address the ML/TF risks for peer-to- peer transactions, which are transactions that do not involve any obliged entities, (4) provide updated guidance on the licensing and registration of VASPs, (5) provide additional guidance for the public and private sectors on the implementation of the ‘travel rule’, and (6) include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.”
Basically, it leaves little space for an outright ban by governments. The Cryptocurrency and Regulation of Official Digital Currency Bill seeks to ban all but a few private cryptocurrencies to promote underlying technologies while allowing an official digital currency by the RBI. The proposed legislation seeks to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India (RBI). The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.
Globally, China has completely banned all cryptocurrency, and declared that it will issue a digitised yuan. However, blockchain and startups are supported.
The US is more welcoming — New York has a licensing framework, BitLicense, for private crypto exchanges. Reports say the US is working on further clarification of rules and regulations regarding crypto.

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