FATF Says Stablecoins Pose a ‘Global Risk’, Links It to Use of Illicit Activities

Financial Action Task Force (FATF), a global regulatory body which deals with countering illicit activities of terror financing and money laundering, has raised serious concern over the use of stablecoins.

During a meeting of some 800 representatives from over 200 jurisdictions, the FATF currently led by Xiangmin Liu of China said that cryptocurrencies could fuel major concerns in global financial stability, while referring to them as a “major strategic initiative”.

Although addressing crypto assets in general, the document laid major emphasis over stablecoins saying: “Emerging assets such as so-called global ‘stablecoins’, and their proposed global networks and platforms, could potentially cause a shift in the virtual asset ecosystem and have implications for the money laundering and terrorist financing risks. There are two concerns: mass-market adoption of virtual assets and person-to-person transfers, without the need for a regulated intermediary. Together these changes could have serious consequences for our ability to detect and prevent money laundering and terrorist financing.”

In another document titled “Money laundering risks from ‘stablecoins’ and other emerging assets,” FATF notes that they will continue to evaluate the risks associated with stablecoins and update its guidance on virtual currencies to have a better understanding of crypto assets.

The document reads: “The FATF will continue to ensure its standards remain relevant and responsive and it will report to G20 Finance Ministers and Central Bank Governors in 2020 on the risks from global ‘stablecoins’ and other emerging assets”.

The FATF report comes just within a week’s time after the G7 Working Group expressed concerns of stablecoins threatening the global monetary policy and financial stability.

Earlier this year in June 2019, the FATF asked all the member nations and its banking regulators to apply strict KYC and AML rules for local exchanges and wallets. In the latest meeting, the FATF clarified how it will evaluate each country’s implementations of its last guidance.

“Countries that have already undergone their mutual evaluation will be required to report back during their follow-up process on the actions they have taken in this area,” wrote FATF.

Besides, it also added that all the member countries will have to strictly implement the FATF standards for crypto assets as well as other emerging asset class. The document read: “Given the global nature of virtual assets, it is essential that countries implement these requirements swiftly, in particular understanding the risks and ensuring the effective supervision of the sector”.

The FATF made it clear that the agency supports digital innovation but needs to make surely that there is due diligence adopted in using the emerging technologies. It added that such technologies shouldn’t create safe havens for criminals and terrorists.