Last week Centre filed a response letter to the Financial Action Task Force’s (the “FATF’s”) request for public consultation on its recently revised “Draft Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers,” (the “Draft Guidance”). The Draft Guidance includes several new recommendations with far reaching implications for the cryptocurrency ecosystem. Among these is a recommendation that could impose responsibilities on stablecoin governance bodies to detect and prevent money laundering across the entire stablecoin network, even where these governance bodies do not have direct customer relationships with the stablecoin users.
We believe that this proposal could be extremely harmful to the future of open payment standards by encouraging regulators to adopt rules that effectively require stablecoin networks to operate as closed systems. Not only would this hamper innovation in financial services and risk undoing the progress in financial inclusion that has been fostered by stablecoins, but it would also be counterproductive to the goal of deterring financial crimes as it would limit the interoperability of AML/CFT tools and the crucial transparency that only open networks can provide.
In our response letter we explain that the Draft Guidance does not adequately consider the costs that could result from applying its recommendations to entities, such as stablecoin governance bodies, that are not well-positioned to apply them. We further urge the FATF to remain consistent with the long-standing principles observed by the FATF and AML/CFT regulators around the world that regulations of this nature should apply only to entities that provide financial services directly to customers.
The full text of our response is available here.