Thread by @jchervinsky

0/ The Financial Action Task Force (FATF) just published new guidance on anti-money laundering regulations for "virtual assets." From media reports alone, you might think it was an unprecedented assault on crypto.

Of course, it wasn't.

Here's what you should know. Thread 👇

1/ FATF is a Paris-based international organization that develops policies & conducts evaluations related to regulations for anti-money laundering & combating the financing of terrorism (AML/CFT).

FATF has 36 member countries including the largest financial centers in the world.

2/ Importantly, FATF doesn't have *any* regulatory authority of its own. FATF makes recommendations, not laws.

Member countries can adopt all, some, or none of FATF's recommendations. There are basically no repercussions for not adopting (or for violating) FATF recommendations.

3/ When you see a media headline like "All Global Crypto Exchanges Must Now Share Customer Data, FATF Rules," it's misleading at best.

FATF doesn't rule on anything & exchanges only have to follow FATF's recommendations if they're adopted as law in a relevant jurisdiction.

4/ "But surely FATF member countries will adopt its crypto-related recommendations," you might think.

Not really.

In fact, the more important the financial center, the less likely it is to hand over control of its regulatory regime to an international organization like FATF.

5/ As you might expect, the United States doesn't really like having its regulatory policy dictated to it by other countries.

FinCEN (the US regulator in charge of AML/CFT regulation) certainly does consider FATF's recommendations, but rarely adopts them wholesale.

6/ For proof, check out FATF's evaluation of the US AML/CFT regime in 2016: fatf-gafi.org/publications/m…

The evaluation looked at how well the US had complied with FATF's AML/CFT recommendations from 2012. FATF concluded that the US had a "well-developed and robust" system . . .

7/ . . . but also said the US's "regulatory framework has some significant gaps[.]"

FATF suggested specific enhancements for the US to adopt, such as regulations for "designated non-financial businesses & professionals" like lawyers, accountants & high-end real estate agents.

8/ Fast forward to 2019, three years after FATF's US evaluation & seven years after its original AML/CFT recommendations.

How many regulations do you think FinCEN has adopted for lawyers, accountants & real estate agents? Yeah, zero. They've barely even considered it, in fact.

9/ Point is, FATF's importance has been overplayed in crypto media. Its recommendations & guidance aren't the law & likely won't become the law any time soon, if ever.

That's particularly true in the US, given that FinCEN just released its own crypto-related guidance last month.

10/ So, what's FATF recommending here, anyway?

I'll direct you to @coincenter's write-up for the details, but the short version is that FATF and FinCEN are basically on the same page. FATF isn't saying anything new or frightening for the crypto industry.
coincenter.org/entry/the-upco…

11/ Most importantly, FATF agrees that AML/CFT regulation:

- should apply to intermediaries that control customers' assets, like centralized exchanges & custodial wallets
- should *not* apply to those who solely develop or sell an application or platform, like software engineers

12/ In fact, FATF's recommendations & FinCEN's guidance are so similar that US AML/CFT regulations may not need to change at all to be fully compliant.

This may be different for jurisdictions with less comprehensive regulations, but crypto is probably the least of their worries.

13/ I could nitpick aspects of FATF's guidance, but overall it seems fine to me.

It could've been much worse, at least. As I said about FinCEN last month, if a government wants to kill crypto, the AML/CFT laws are likely the easiest way to do it without passing new legislation.

14/ Plus, compare FATF to other international organizations like the BIS, which told us last year to "stop trying to create new money."

FATF instead acknowledges that crypto has "the potential to spur financial innovation and efficiency and improve financial inclusion." Good!

15/ In short, FATF's crypto guidance is:

- not the law & maybe never will be
- very similar to what FinCEN already said
- rightly focused on custodians, not developers
- a good sign for government acceptance of crypto

Now we wait & see what member countries do with it.

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