IN its Updated Guidance for a Risk-Based Approach for Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs), released in 2021, the Financial Action Task Force (FATF) advised that, in identifying, assessing, and taking effective action to mitigate their money laundering and terrorism financing risks, countries should apply preventive measures such as a better understanding on how they hurt the economy. FATF is a New York-based independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorism financing, and the financing of proliferation of weapons of mass destruction. Its recommendations are recognised as the global anti-money laundering (AML) and countering the financing of terrorism (CFT) standards. One of the most eye-catching recommendations in the updated document is for domestic cooperation and information exchange between the supervisors of the banking, securities, commodities, and derivatives sectors and the VASP sector. FATF recommended cooperation among law enforcement, intelligence, financial intelligence unit and VASP regulators to effectively monitor the VAs and VASPs playing in the sector.
It also stated that regulators of VAs and VASPs should also consider liaising with other relevant domestic regulatory and supervisory authorities to secure a coherent interpretation of VAs and VASPs’ legal obligations and to promote a level playing field, including between VASPs and between VASPs and other obliged entities such as financial institutions and Designated Non-Financial Business and Profession. It emphasised that such coordination is particularly important where more than one regulator is responsible for supervision (e.g., where the prudential supervisor and the AML/CFT supervisors are in different agencies or separate divisions of the same agency).
According to the guidance, it also is particularly relevant in the context of VASPs that provide various products or services or engage in different financial activities that may fall under the purview of different regulatory or supervisory authorities within a particular jurisdiction. Crucially, it noted that multiple sources of guidance should not create opportunities for regulatory arbitrage, loopholes, or unnecessary confusion among VASPs. “When possible, relevant regulatory and supervisory authorities in a jurisdiction should consider preparing joint guidance,” it said. Interestingly, this was exactly what the Nigerian government did when it decided to make further concerted efforts to safeguard Nigeria’s foreign exchange market and combat speculative activities. Central to those efforts is a multi-pronged and multi-agency approach, which saw the Office of the National Security Adviser (ONSA) and the Central Bank of Nigeria (CBN) joining forces to address challenges impacting the nation’s economic stability. The collaborative approach to tackle these infractions involves a coordinated effort with key regulatory and law enforcement agencies, including the Securities and Exchange Commission (SEC), the Nigeria Police Force (NPF), the Economic and Financial Crimes Commission (EFCC), the Nigeria Customs Service and the Nigeria Financial Intelligence Unit (NFIU). FATF suggested that financial regulators should communicate their expectations of VAs and VASPs’ compliance with their legal and regulatory obligations and may consider engaging in a consultative process, where appropriate, with relevant stakeholders. Such guidance may be high-level requirements based on desired outcomes, risk-based obligations, and information about how regulators interpret relevant legislation or regulation or more detailed guidance about how VAs and VASPs might best apply particular anti-money laundering and counter-terrorism financing controls.
A strong argument can be made that, when the CBN initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for Bureau De Change operators, enforcing the Net Open Position limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap, it was in actual sense implementing the provisions of the FATF guidance. FATF also emphasised the need for public authorities to share risk information, where possible, to better help inform the risk assessments of VASPs. “The type of information relating to risks in the VA space that the public and private sectors could share include typologies and methodologies of how money launderers or terrorist financiers misuse VAs and VASPs, a particular VA mechanism over another (e.g., VA transfer or exchange activities versus VA issuance activities in the context of money laundering or terrorist financing) or VAs more generally.”
The guidance also suggested that regulators and other competent authorities consider the guidance and input of virtual asset technical experts to develop a deeper understanding of the relevant business models and operations of VAs and VASPs, their potential exposure to money laundering and terrorism financing risks, as well as the risks associated with particular VA types or specific covered VA activities and to make an informed judgment about the mitigation measures in place or needed.
Having engaged the world’s biggest crypto trading platform, Binance, the Nigerian government continued its engagement with other platforms by enteringinto a three-year exclusive IPR (intellectual property right) agreement with Developing Africa Group to launch a national wallet for Nigeria. The engagement led to the selection of Koibanx and Algorand Blockchain as the payment platform and protocol on which the project will be built.
Without a doubt, ONSA has been at the forefront of FATF’s recommendation that countries should consider how they might share information with the private sector to help the private sector better understand the nature of law enforcement information requests or other government requests for information or to help shape the nature of the requests as regards VAs and VASPs.
As events of recent weeks have shown, Nigeria is in the good company of countries that have taken the regulation of VAs and VASPs seriously, including the US, Italy, Japan, Sweden and Finland.
In Italy for instance, service providers related to VAs are required to be listed in a special section of the register held by “OrganismodegliAgenti e deiMediatori” (OAM). The registration is a precondition for service providers related to VAs to carry out their activity in Italy. Work is currently ongoing to implement the register.
The United States has a comprehensive and technology-neutral regulatory and supervisory framework in place for regulating and supervising “digital assets” for anti-money laundering and countering financing of terrorism that subjects covered providers and activities in this space to substantially the same regulation that providers of non-digital assets are subject to within the existing AML/CFT regulatory framework for financial institutions.
In Nigeria, the SEC is updating its guidelines for crypto service providers to block criminals from engaging with capital markets. The commission said, “The SEC has also developed a new AML/CFT/CPF onboarding manual for licensing/registration and ongoing screening of Digital and VASP Beneficial Owners to ensure that criminals are not registered as operators in the capital market.” It also indicated its readiness to interface with genuine VASPs based on these clear rules and regulations and consult on its proposed measures before its final approvals.
- Mijinyawa writes in from Abuja
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