A Guide to Anti-Money Laundering for Crypto Firms

Changes to AML/CFT Laws Are on the Horizon

CFT Knowledge & Training

The Philippines expands its AML/CFT laws, the US calls for input on new UBO requirements and the UK focuses on regulating stablecoins.

We share our financial crime regulatory highlights from the week of 5 April 2021.

The Philippines Expands Scope of AML/CFT Laws

All financing and lending companies operating in the Philippines must register with the Anti-Money Laundering Council (AMLC) and comply with AML/CFT reporting regulations, according to the country’s Securities and Exchange Commission (SEC). The regulatory agency released the updated guidelines on Tuesday, March 30, and followed up with a press release confirming the change on April 4.

Previously, only financing and lending companies “with more than 40% foreign participation in their voting stocks and those with paid-up capital of at least P10 million” were required to comply with the nation’s anti-money laundering laws.

The impacted companies will have two months to register with the AMLC’s online reporting system and submit proof to the Anti-Money Laundering Division of the SEC’s Enforcement and Investor Protection Department (AMLD-EIPD). They must also design and put into practice their own money laundering and terrorist financing prevention program (MTTP) that complies with all existing AML regulations and demonstrates a risk-based approach to AML/CFT threats. The program should be approved by the company’s board of directors or its equivalent and then filed with the AMLD-EIPD.

The amendment to the Philippines’s existing AML legislation and guidelines is the latest in a series of changes intended to close gaps, better protect the financial system and ultimately avoid being placed on FATF’s grey list once again — an action that would make it more costly for Filipinos to do business and make transactions. In January, for example, the Philippine government expanded the scope of the Anti-Money Laundering Act (AMLA) to include offshore gaming operators as well as real estate developers and brokers. Then, in February, the country’s central bank revised its AML/CFT risk assessment framework and introduced a four-point rating scale to help companies evaluate risks and the quality of its risk management program.

The Philippines had managed to make enough progress on strengthening its AML safeguards to be removed from FATF’s grey list in 2017. But FATF placed the country under a year-long observation period in late-2019, which was extended to February 2021 amid the global COVID-19 pandemic. The intergovernmental organization will make a final decision in June.

FinCEN Issues Call for Feedback on UBO Requirements

The US Financial Crimes Enforcement Network (FinCEN) is asking for feedback from the public on how best to implement the ultimate beneficial owner reporting requirements of the newly passed Corporate Transparency Act (CTA).

The new law, which was passed as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA) on January 1, 2021, brings about sweeping changes to the Bank Secrecy Act. Notably, it expands the scope of FinCEN’s duties and responsibilities provides additional incentives for whistleblowers to come forward, and establishes federal reporting requirements for the beneficial ownership information of legal entities incorporated in the US. More specifically, concerning the latter, it requires certain businesses to register their beneficial ownership information with FinCEN, which the agency will then use to create a federal database accessible to law enforcement and financial institutions to aid in fulfilling customer due diligence requirements.

It’s this change that is the focus of the current call for feedback. Through the issuance of an Advance Notice of Proposed Rulemaking (ANPRM) on April 5, FinCEN has posed nearly 50 questions to the regulated parties, regulators, and other interested parties on several different aspects of the law. These include whether and how to define certain terms within the law, what specific information should be collected and reported and how best to make that information accessible to the relevant parties. The comment period runs until May 5.

While this ANPRM will be the first of several, it is likely one of the most significant, given its direct and significant impact on AML/CFT compliance programs. There is little time to waste too. The regulations surrounding the beneficial ownership registry must be finalized and published by January 2022. Financial institutions and other regulated entities would do well to submit their recommendations sooner rather than later if they wish to influence how their compliance programs will need to be restructured to accommodate the new law’s requirements next year.

The FCA Confirms Focus on Stablecoins

Amid increased attention on and acceptance of virtual currencies, the UK’s finance minister confirmed on March 30 that the country plans to focus on regulating stablecoins first before turning its attention to other cryptocurrencies and the broader market.

This is due, in part, to the speed of stablecoin adoption. Although they don’t create the same buzz as Bitcoin or Ether, stablecoins — virtual currencies backed by a reserve asset like the British pound or gold — have become the most-used cryptocurrencies by trading volume, with a current collective market capitalization of just over $60 billion. They are primarily used for trading and investment.

Addressing a City & Financial conference, Finance Minister John Glen offered more insight into the reasoning behind the decision, saying that while no coin has yet been able to claim dominance over the market, “we need to manage risks to competition. There is the potential for some firms to swiftly achieve dominance and crowd out other players, due to their ability to scale and plug into existing online services. We believe the case for intervention in the wider cryptocurrency markets is less immediately pressing.”

That isn’t a worry shared by the UK alone: many regulators and governments have expressed similar concerns over the past few years, particularly in response to Facebook’s intention to launch a stablecoin of its own — formerly known as Libra, now called Diem. Diem is awaiting regulatory approval and is expected to launch later this year.

Even so, this doesn’t mean the wider cryptocurrency market has received a green light for light regulation. In July 2019, the Financial Conduct Authority issued guidance on crypto that specified which assets and currencies are regulated and which are not, laying the groundwork for future regulations. Then, last year, the FCA released a consultation paper seeking input on how best to oversee cryptocurrency promotions to protect investors. Another consultation paper followed in January on potential future regulatory actions as crypto assets, stablecoins, and, more generally, blockchain technologies become more widely used. 

These actions suggest that while the UK may be focusing on stablecoins, they are still looking to tighten AML/CFT and consumer protections on crypto across the board — something financial institutions must continue to monitor and prepare for.

Originally published April 8, 2021, updated November 18, 2021

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