BLOG: Responsible Innovation – The FATF Recommendation & The Importance of Standards-Based Regulation
Hon. Albert Isola M.P. - Minister for Commerce of Gibraltar
When our framework for regulating Distributed Ledger Technology (DLT) came into effect in January of last year, it marked the culmination of months of deliberation, consultation and analysis. Our principled, risk-based approach sits firmly in a global movement to regulate DLT. Central to that movement is the Financial Action Task Force (FATF), an inter-governmental body that sets standards for combating money laundering, terrorist financing and other threats to the financial system. On the 21st June, the FATF published their Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers. This is a landmark recommendation, a necessary one, and I believe it puts consumers first while tackling the threat of criminal and terrorist misuse of virtual assets, head on.
Taking a principled approach, the FATF recommendations are recognised as the international standard and this new ruling is testament to that fact. The recent recommendations recognize the potential for blockchain and cryptocurrencies, while placing consumer protection at the heart, by setting guidelines on how virtual asset service providers, including crypto exchanges, should be required to pass information about their customers to one another when transferring funds between firms. We view this as a vital step in the right direction towards achieving globally accepted standards in the blockchain industry — standards which combat the use of this innovative and potentially transformative technology in illicit activities.
Placing principles and standards at the heart of regulation is mutually beneficial for consumer, regulator and enterprise. The effects of principles based DLT regulation are clear. It benefits DLT companies, in providing a framework for success, a list of regulations they must adhere to to gain recognition as a trustworthy DLT provider and in turn, can aid them in attracting investment. On a country level, the FATF has a globally-regarded reputation and by adopting their recommendations, regulators are opening the doors for high quality projects to set up shop.
At the recent New York blockchain week, I had the chance to discuss the importance of global blockchain regulation in creating a sustainable ecosystem. Myself and other leaders agreed that while there is competition, there is also a need to collaborate — by developing international standards together, we can accelerate the ascent of blockchain technology in our economies. This recent FATF guidance provides an opportunity for countries to implement safe, well-researched and principle-based anti-money laundering and counter-terrorist financing obligations. I hope this recommendation will inspire countries to recognize that while new technologies, services and products offer potentially efficient alternatives to traditional financial products, they can also enable illicit activities. By collaborating we are combating.
Gibraltar has always strived to actively support the development of new markets and activities, promoting innovation that is well considered, and imperatively, safe for consumers and the jurisdiction. Honesty and Integrity is our first principle. Similar to Gibraltar, the FATF’s approach to virtual currencies prioritises thorough risk-analysis and the belief in principles-based regulation. We set high standards as we have full faith in the future of DLT in the global economy. However, we cannot stand by and let criminals and terrorists take advantage of the speed and efficiency of this innovative technology. As US Secretary of the Treasury Steven Mnuchin, who is FATF's outgoing president, said, “We will make sure that virtual asset service providers do not operate in the dark shadows”. We too believe in this principle.