Notes From: The Challenges of New Technologies for AML/CFT by RAW Compliance

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Webinar: The Challenges of New Technologies for AML/CFT, presented by RAW Compliance

Date: 15 Jul 2021 – 5-6pm GMT+8


  • Matthew Gardiner, Founder of A1 AI
  • Malcolm Wright, Chief Compliance Officer, 100X Group
  • Gaby Hui, Director of Public Relations & Corporate Communications at Merkle Science
  • Robin Lee, Head of APAC, Napier AI

Moderator: Oonagh van den Berg, CEO and Founder, RAW Compliance / Managing Director, Virtual Risk Solutions (VRS)

Disclaimer: As the title of this post states, these are my notes from and reflections on a particular Webinar. In many cases, I am not quoting panelists or speakers verbatim, which can lead to misinterpretations of what was actually said, or intended to be communicated by, the speakers and panelists. Where this happens, the error is wholly mine.

I’ve been dreading putting up this #notesfrom post for the past few days, mainly because this Webinar, like all RAW Compliance Webinars, was remarkably dense in terms of content and insight. RAW Compliance has quickly become one of my favorite groups to follow, and has set the high-water mark for me in terms of how compliance Webinars should be conducted. I wish I could attend more of them than I already do.

I swear that this Webinar had a different name when I signed up for it. My notes say I signed up for this as “The Travel Rule: New Updates”, which is quite specific and topical, but which I suppose was too narrow in scope for this discussion.

And now, my notes and takeaways:

  1. An important context for this Webinar is the recent publication by the FATF of its second twelve-month review of the VASP industry’s implementation of processes intended to address the 40 recommendations. You can grab a copy from the FATF Web site here.
  2. A great deal of the discussion involved the travel rule, which has been a major pain point for VASPs – and for the next year or so, I expect you’ll hear about this a lot from me whenever I discuss crypto compliance. Specifically, the Travel Rule and all the issues around it are grounded in the FATF’s Rule 15 and Rule 16 – to understand the issues better, have a look at those specifically, as well as the Interpretative Notes relevant to these. (The FATF Recommendations are here, if you didn’t already have your own copy.)
  3. Also relevant to today’s discussions are the FATF guidance for VASPs and VA Service Providers, which are here.
  4. The panel discussion started with a focus on Recommendation 15 and 16 and how they’ve been implemented by different jurisdictions. The panel noted that part of the challenge had to do with enforcement instead of regulation – while jurisdictions had regulation or legislation in place, enforcement was uneven from one jurisdiction to the next.
  5. This creates a scenario where bad actors could exercise some kind of regulatory arbitrage, where they choose jurisdictions with weak enforcement schemes or weak regulations.
  6. My personal note here: while this is true, it also creates a situation where jurisdictions can compete with each other for the VASP and VA Service Provider business by using the strictness or . As a business development executive, this excites me. As an AML specialist, this alarms me.
  7. Highlighted here was the difference in dynamic between FATF itself and the FATF-Style Regional Bodies (“FSRBs”), which include the Asia-Pacific Group (“APG”), of which the Philippines is a member. Normally both FATF and the FSRBs are expected to be aligned, but implementation of the recommendations with regard to VASPs has been more aggressive among the FSRB members compared to the FATF members, which is a reversal of what normally occurs.
  8. Further complicating the global implementation of the FATF recommendations vis-a-vis VASPs are multiple definitions of VASP or terms referring to the same (25 so far), which results in differences in licensing and legal and regulator approaches. As an example of this, some providers were asked to withdraw their applications for registration in the UK as they did not fit the proper legal definitions.
  9. Licensing for smaller firms that operate in multiple jurisdictions is problematic given this regulatory arbitrage. A major challenge involves regulatory capital, which can make compliance with licensing requirements across jurisdictions prohibitive. “Some entities just can’t afford it.”
  10. None of this should be taken as a reason for a firm not to perform at a high standard.
  11. Another concern raised is the capacity of the regulators to understand what and how to regulate. This has been echoed in multiple Webinars and forums I’ve been on, and I believe it’s a valid concern that runs the gamut from manpower to budget and investment to methodology.
  12. The current trend towards DeFi is also challenging regulators, and the FATF is expected to issue a guidance about DeFi later this year that will specify that DeFi must be regulated.
  13. This leaves many firms in the position of having to manage the regulatory arbitrage themselves and trying to establish their own benchmarks, which can be self-serving.
  14. What is needed across jurisdictions is an EU-style harmonization of AML requirements, while staying mindful of local country risks. This is what the FATF actually started out trying to do.
  15. I wonder if ASEAN could attempt this – something to look into.
  16. The panel shifted to discussing peer to peer transactions on blockchains, concluding that there isn’t enough data to understand the risks or the scale of the phenomenon. The FATF itself is still trying to come to grips with it. An interesting perspective is that it may not be as big a phenomenon as people think it is.
  17. One strategy for money laundering on the blockchain is mixing coins. While not yet banned, it may be soon.
  18. Monero is currently the privacycoin of choice and may be involved in TF.
  19. A related development is that OFAC has already started to mark wallets for sanctions, and a key factor in this involves the relevant jurisdictions in which the wallet owners reside or operate.
  20. There’s a need to shift back from basic blockchain analytics to full-featured AML monitoring, which is more holistic and channel-neutral in approach.
  21. There isn’t enough focus on asset recovery on the blockchain – this works to further stigmatize the blockchain and VASPs. “You’ll see far better KYC and far better asset recovery rates than you’d see in the fiat sphere.”
  22. Fintech is both a challenge and an opportunity for a good compliance professional – the people in a fintech may not understand or appreciate why AML is important.
  23. The term of the evening is the FATF’s preferred term, “responsible innovation”.
  24. Lastly, some interesting use cases and trends mentioned: Central Bank Digital Currencies (CBDCs) – “Watch CBDCs, they’ll be big.”, DBS’s digital bond project, and the use of NFTs for real estate titles, which is currently being studied in Wyoming.

This was a lot, and I’ve left some items in my notes for various reasons. I hope I’ve been able to do this session justice.

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