The FATF defines a financial institution as a natural or juridical person who facilitates as a business, on behalf of another, one or more specified activities or operations. The FATF recommendations oblige jurisdictions to subject financial institutions under the imposed specified activities-based AML/CFT requirements.

Under the FATF, a virtual asset refers to an asset whose value is digitally represented and is capable of being traded or transferred through a digital platform. Virtual assets may also be utilized for payment or for the purpose of investment. The FATF guidelines are built around these virtual assets with the aim of establishing a risk based approach and providing proper guidance with regards to virtual assets activities and operations, and as well as virtual asset service providers. This enables members of the private sector desiring to engage in VA activities to be governed by the appropriate regulatory guidelines necessary to fulfill the associated obligations.

A virtual service provider is a natural or legal person that conducts business on behalf of another through facilitation of specific activities such as exchanges between virtual assets and fiat currencies, exchanges between one or more forms of virtual assess, and the transfer of virtual assets among others. Section II of the FATF that deals with the guidelines on VAs and VASPs aim to discuss the applicability of a risk based approach to the VASP and how they must be obliged to comply with AML/CFT requirements.

In making reference to the Guidance; countries, VASPs, and other obliged entities that are involved in VA activities (either through the provision of or the participation in the said activities) must always take into consideration the principles of functional equivalence and objective-based approach, technology-neutrality and future-proofing, and level-playing field. This means that the FATF requirements are made applicable to different legal and administrative systems as they vastly explain implementation without having to limit it by introducing specifics. This allows for an ends-based approach, rather than imposing a one size fits all regulatory regime across jurisdictions. It is also made to apply to all VAs, VA activities, and VASPs regardless of technological platform. Lastly, it serves as a reminder to ensure that competent authorities treat VASPs on an equal footing, without putting one over another.

A guidance has been established to directly address the risks associated with virtual assets and virtual asset service providers due to the fact that their global reach, potential for increased anonymity, ability to enable individual user-to-individual user transactions, and rapid settlement has greatly exposed them to the possibility of abuse by criminals, money launderers, terrorists financiers and other illicit actors.

Securely implies that it is among the obligations of a provider to safeguard the integrity and availability of required information in order to assist record keeping and the use of such information by receiving VASPs or other obliged entities. The term also indicates the necessity to protect the information for unauthorized disclosure.

The risk-based approach to AML/CFT refers to the development of prevention or mitigation safeguards that are substantial to address the ML/TF risks that countries and relevant obliged entities may assess. When put in the context of supervision, however, the risk based approach pertains to the allocation of supervisory authorities of resources in a way that is conducive to the application of the risk-based approach by VASPs.

An effective risk-based regime should showcase the national, legal and regulatory framework that should further indicate and expound on the context of the financial sector policy objectives that the country is inclined towards, inclusive of information with regards to financial inclusion, financial stability, financial integrity, and financial consumer protection goals and as well as taking into consideration other market factors such as competition.

The FATF recommendations oblige supervisors to prioritize the allocation of resources to areas with higher levels of ML/TF risk. The identification of the frequency and intensity of periodic assessments must be in accordance with the level of ML/TF risks to which the sector and individual VASPs are exposed.

The significance of training lies in its ability to enable the understanding of the VASP sector and the various business models that exist. The staff undergoes training in order for staff to learn the process of conducting an assessment with regards to the quality of the VASP’s ML/TF risk assessment framework and to equip them with the ability to form sound judgements to determine if the VASP’s AML/CFT internal controls are adequate, proportional, effective and efficient. Training is also conducted in order to achieve uniformity in the supervisory approach at a national level in the event that the national supervisory model is devolved or fragmented.

In considering risk factors associated with the VA product, service, transaction, or delivery channel, enhanced due diligence controls may be established to address potentially high levels of risks by means of the corroboration of identity information from customers, tracing of a customer’s IP address, and searching on the internet for corroborating activity information coinciding with the customer’s transaction profile; as long as the data collected is in accordance with the national privacy legislation 16

A credible source pertains to information that is fabricated by international organizations known to have established reputations and have obtained universal recognition that make information available for the public. These sources are tasked to identify the countries that indicate factors of higher risks.

With regards to the risk based approach, supervisors are expected to take into consideration if the VASP’s AML/CFT compliance and risk management program meets regulatory requirements and if it appropriately and effectively mitigates and manages relevant risks. In the event that VASPs conduct operations across various jurisdictions in accordance to multiple licenses or registrations, the given cross-border nature of VA activities necessitates that the supervisor registers the natural or legal person VASP must be reminded to take into consideration the risks that may be possibly encountered and the scope of risk mitigation.

Ongoing monitoring is characterized by the scrutinization of transactions with the aim of determining whether the transactions may be reconciled with the VASPs or other obliged entity’s information about the customer, and as well as the nature and purpose of the business relationship. Monitoring must also be done on a consistent basis; administered through the identification of changes to records and profiles, keeping them up to date, and identifying any suspicious variances that may occur.

The Financial Supervisory Authority assisst in providing supervision and assurance that providers of exchange services between virtual currency and official currency operate in compliance with the Anti-Money Laundering Act. Among other information, the name, type of enterprise, organization number, and as well as services offered by the provider must be registered with the FSA.

Peer-to-peer trading platforms are websites that pave for buyers and sellers of virtual assets to find one another. These platforms may also serve as intermediaries through the facilitation of trade. If the platforms allows for the exchange, transfer, or other financial activity involving VAs then they are considered as VASPs that operate exchange and/or transfer activities as a business on behalf of its customers.

The DApp is a software program that conducts its operations on a peer-to-peer network of computers that are run on a blockchain platform. This indicates the presence of a dispersed public ledger that enables the establishment of secondary blockchains; designed in a manner that does not limit control to only a single identifiable administrator or group of administrators.

Countries must make available an array of effective, proportionate and dissuasive sanctions to be imposed on natural or legal persons who fail to adhere to the compliance requirements of the AML/CFT. The same sanctions apply to VASPs, and with regards to FIs and DNFBP, applicability is not only limited to the VASPs, but to directors, senior management and personnel.

VASPs are normally given the task to open and maintain accounts. They are also expected to collect relevant CDD information as they fulfill responsibilities on behalf of their customers; executed through the catering of services to or engaging in covered VA activities. However, to regulate occasional transactions, conducting CDD is also deemed required for transactions that exceed the designated threshold of USD/EUR 1000.

The FATF recommendations state that engagement in higher- risk business relationships require adherence to measures consistent with those applicable to foreign PEPs. Foreign PEPs refer to individuals endowed by a foreign country with the responsibilities of carrying out the relevant public functions. The FATF glossary includes Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, and important political party officials as examples.

Position limits or position accountability thresholds are maintained in order to mitigate the risks of market manipulation. Future exchanges, to assess whether the said limits or accountability thresholds have been exceeded, take into consideration any position held directly held or indirectly controlled by a specified party, any position held by any other person acting, in accordance to agreement, as if the position was held by a specified party, and lastly, any position held with regards to an option on the futures contract, calculated on a futures equivalent basis.

The risks of market manipulation are curtailed through the imposition of position limits and position accountability thresholds. In the event that the limits or thresholds are exceeded, futures exchanges may remedy the situation by imposing higher margin requirements in respect of the positions, by establishing necessary conditions and restrictions to govern trading and ensure compliance with position limit, and as well as through ceasing further increases or liquidating the said positions to comply with the limits.

A relevant products exchange is prohibited from listing or permitting the trading of relevant products that have a materially adverse impact on the fair, orderly and transparent operations of organized markets, and as well as its efficient functioning in terms of allocating capital and transferring risks. It must also prevent the trading of relevant products that have the capacity to materially increase the systemic risk in Singapore. These are among the requirements governing relevant products as listed under SFA Cap 298.

Market manipulation refers to the susceptibility of a market to be influenced by forces attempting to interfere with free and fair market operations and the fabrication of artificial, false and deceptive appearances with regards to the price of, or market for a product, security, commodity or currency. Position limits or position accountability thresholds are established in order to mitigate the risks of market manipulation.

A futures exchange is expected to ensure that the futures contract it lists or permits to trade has established methodologies to set final settlement prices. These final settlement prices must be deemed to have the capability to reflect the price or value of the underlying thing or underlying things of the futures contract.

A futures exchange is expected to ensure that the futures contract it lists or permits to trade has established methodologies to set daily settlement prices. These final settlement prices must be deemed to provide an outlook on the prevailing market conditions.

A warrant, for the purposes of the guidance, is defined as an exchange-traded derivative that provides a party the right, but does not impose the obligation to buy or sell specified securities or specified units of a collective investment scheme at a specified price on a specified future date. It is also defined by the fact that parties discharge their obligations in cash, an amount determined by a formula laid out in the guidance, on or before a specified date. Excluded warrants are not governed by the provisions of SFA Cap 289.

FATF recommendations lay out the standards that assist in the determination of sectors that are susceptible to ML and TF. The overall risk shall be determined through the assessment of the VASP sector. The VASP’s risk assessment must take into consideration various factors that are deemed relevant by the VASP and as well as by competent authorities. These include the types of services, products or transactions involved, customer risk, geographical factors, and types of factors exchange among others.

In the event that grounds are established that fiat currencies and goods arose from engagement in a criminal activity, law enforcement authorities (LEAs) are given the right to request the temporary freeze of assets. In order to extend the duration of the freeze, or to obtain power to confiscate the assets, LEAs should secure a court order.

Recommendation 16 defines wire transfers as any transaction entered into on behalf of an originator through a financial institution utilizing electronic methods with the intention of providing a beneficiary person at a beneficiary institution access to an amount of funds. The recommendation also sets out requirements for countries relating to wire transfers and related messages in an attempt to prevent terrorists and criminals from having unhindered access to electronically-facilitated funds transfers.