The Financial Action Task Force (FATF) is an international organization, which issues recommendations to its member states for effective money laundering and terror financing prevention. The recommendations of FATF have been the driving force for the global regulation concerning money laundering prevention ever since the organization was established. Especially the EU has displayed exemplary dedication when it comes to the implementation of the FATF recommendations. Crypto assets are now explicitly included in the recommendations of the committee under the term of virtual assets since the last update of the FATF recommendations in summer of 2019. FATF defines virtual assets as digital representations of value that can be digitally traded or transferred and which can be used for payment or investment purposes. The definition therefore covers both traditional cryptocurrencies such as Bitcoin or Ether as well as e.g investment tokens that are smart contract-based.
FATF RECOMMENDS COMPREHENSIVE COLLECTION AND SHARING OF INFORMATION
Accompanying its recommendations, FATF also publishes interpretive notes. In the current version of these interpretive notes, FATF advises its member states to ensure that service providers with connections to virtual assets must collect information regarding the senders and the recipients of virtual assets and disclose this information to other service providers which are involved in the transaction and to authorities upon request. This recommendation, which is known as the Travel Rule does not have any direct legal effect, because FATF does not have any direct legislative power. The German Federal Ministry of Finance is now eager to transpose the Travel Rule into German law and published a draft for a Crypto Asset Transfer Regulation.
WHAT EXACTLY DOES THE DRAFT OF THE CRYPTO ASSET TRANSFER REGULATION REGULATE?
Contentwise, the draft of the Crypto Asset Transfer Regulation exclusively obligates regulated banks and financial service institutions to apply the stipulations from the Credit Transfer Regulation mutatis mutandis to crypto asset transfers. Consequently, the obligated institutions will have to provide the name and address of their client to the crypto service provider of the transaction recipient. Additionally, because the Credit Transfer Regulation calls for the disclosure of the bank account number of the client, a mutatis mutandis application of the Credit Transfer Regulation to crypto asset transfers would necessitate the disclosure of the blockchain address respectively of the public key of the client. Should there be no service provider involved on one side of the crypto transaction, the obligated service provider on the other side of the transaction would have to collect and store the aforementioned information itself, so that it could relay to an authority upon request.
CURRENT DRAFT ONLY RELATES TO CRYPTO ASSETS
Interestingly enough, the current draft version of the Crypto Asset Transfer Regulation is only applicable to crypto assets as they are defined in the German Banking Act (KWG), which is not as far-reaching as the definition of virtual assets of the FATF. To illustrate: Cryptocurrencies which are only useable within limited trading networks are not defined as crypto assets by the KWG while the definition of the FATF does not intend for such an exemption. It has to be noted, that the current draft is the first proposal of the ministry to tackle this issue and that the draft is currently subject to debate. It can therefore not be ruled out that the draft of the Crypto Asset Transfer Regulation may be revised and amended in the upcoming months.
Attorney Lutz Auffenberg, LL.M. (London)
OUR BLOG ARTICLES IN A MONTHLY NEWSLETTER?
The FIN LAW Newsletter provides you with all blog articles of the month via monthly e-mail. Our newsletter is published regularly at the beginning of every month. Feel free to sign in to the FIN LAW Newsletter by clicking the button below. Of course can can sign off at any time if you do not wish to receive our newsletter anymore.