Canada: FATF Issues Guidance On Virtual Assets

Last Updated: July 26 2019
Article by CyberLex Blog, Ana Badour and Arie van Wijngaarden

On June 21, 2019, the Financial Action Task Force1 ("FATF") released Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers as well as a Draft Interpretive Note to FATF Recommendation 15 addressing virtual assets (together, the "FATF Guidance").  The FATF Guidance clarifies a risk-based approach to virtual assets ("VAs") and virtual asset service providers ("VASPs") for anti-money laundering ("AML") and counter terrorism financing ("CTF") purposes. The FATF have provided member countries (which include Canada) with 12 months to adopt these guidelines, with a review set for June 2020.

The most recent FATF Guidance builds upon previous statements by the organization that its requirements apply to VAs and VASPs.  This coincides with a global current of regulatory interest in such assets.  For example, in the US, the Financial Crimes Enforcement Network (FinCEN) recently issued guidance on how its regulations apply to money transmission involving convertible virtual currencies and an Advisory on Illicit Activity Involving Convertible Virtual Currency (see our blog post here).  Likewise, in Canada (which is a member of the FATF), recent amendments to the regulations ("PCMLFTR") to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the "PCMLFTA") were recently finalized (see our legal update here), expanding the scope of the PCMLTFA to dealers in virtual currency.

Virtual Assets and Virtual Asset Service Providers

The FATF Guidance continues the expansion of regulatory interest from virtual currencies specifically to virtual assets more broadly.  The FATF defines VAs as digital representations of value that "can be digitally traded, or transferred, and can be used for payment or investment purposes." The related definition of VASP includes any entity which, on its own account or on behalf of another, engages in:

  • exchange between virtual assets and fiat currencies;
  • exchange between one or more forms of virtual assets;
  • transfer of virtual assets;
  • safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  • participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.

The VASP definition is broad enough to include VA exchanges and transfer services, wallet providers, providers of financial services relating to the issuance, offer, or sale of VAs such as via an ICO, and virtual to virtual transactions.

Likewise, in Canada, the definition of "virtual currency" was expanded in the recent PCMLTFR amendments to include "a digital representation of value that can be used for payment or investment purpose", expanding the scope beyond simply payment use cases. 

Purpose and Scope of FATF Guidance

The FATF Guidance has two purposes.  First, it is intended to assist national regulators in the development of supervisory frameworks for VA activities and VASPs.  Second, it is intended to help private sector entities seeking to engage in VA activities, in understanding their AML/CTF obligations and steps necessary to comply with regulatory requirements.  This includes:

  • Understanding and implementing a risk-based approach to VA activities or operations;
  • Supervision or monitoring of VASP activity for AML/CTF purposes;
  • Licensing or registration based on each applicable jurisdiction's requirements;
  • Preventive measures, such as customer due diligence, recordkeeping, and suspicious transaction reporting, among others;
  • Understanding risk indicators that should specifically be considered in a VA context because they could obfuscate transactions or inhibit VASPs' ability to identify customers; and
  • International cooperation for enforcement measures.

Obligations Applicable to Virtual Asset Service Providers

The basic principle underlying the FATF Guidelines is that VASPs are expected to "identify, assess, and take effective action to mitigate their ML/TF risks" with respect to VAs. 

This begins with a requirement that a VASP be licensed or registered where its place of business is located.  If a VASP wishes to offer services in more jurisdictions, it should be required to register or apply to a license with the relevant authority.  Countries are encourage to actively investigate unlicensed VASPs by  using web-scraping and  open-source information monitoring to target online advertising.  Furthermore, the FATF Guideline provides that criminals and their associates may not hold or own a significant or controlling interest in a VASP.

VASPs are also expected to have "effective systems for monitoring and ensuring compliance with national AML/CTF requirements" such as having qualified Compliance Officers, written policies and procedures, documented risk assessments, ongoing training, and measures of the effectiveness of the compliance program.   These programs should be subject to regular auditing.  In Canada, for example, dealers in virtual currency will be subject to such requirements pursuant to the recent PCMLTFR amendments. 

Travel Rule and Other Information Requirements

The FATF Guidance includes a number of recommendations relating to the collection of information, such as those relating to the collection of Know-Your-Client information.  In particular, the FATF Guidance reiterates the applicability of the so-called "travel rule" to virtual asset transactions, noting that:

"[A]ll of the requirements set forth in Recommendation 16 apply to VASPs or other obliged entities that engage in VA transfers, including the obligations to obtain, hold, and transmit required originator and beneficiary information in order to identify and report suspicious transactions, monitor the availability of information, take freezing actions, and prohibit transactions with designated persons and entities. Countries should therefore ensure that ordering institutions (whether a VASP or other obliged entity such as a FI) involved in a VA transfer obtain and hold required and accurate originator information and required beneficiary information and submit the information to beneficiary institutions (whether a VASP or other obliged entity such as a FI), if any. Further, countries should ensure that beneficiary institutions (whether a VASP or other obliged entity) obtain and hold required (not necessarily accurate) originator information and required and accurate beneficiary information (...)."

The FATF Guidance further prescribes that the information required to be collected should include the following:

  • originator's name (i.e., the sending customer);
  • originator's account number where such an account is used to process the transaction (e.g., the VA wallet);
  • originator's physical (geographical) address, or national identity number, or customer identification number (i.e., not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth;
  • beneficiary's name; and
  • beneficiary account number where such an account is used to process the transaction (e.g., the VA wallet).

Given the nature of the transactions and underlying decentralized and pseudo-anonymous blockchain technology used for most virtual asset transactions, the collection of such information could present some challenges.  The FATF does not prescribe how such information is to be collected but provides the following as examples of technologies that could be used to collect such information (i) public and private keys, (ii) transport layer security/ secure sockets layer (TLS/ SSL) connections, (iii) X.509 certificates by certificate authorities that use the X.509 PKI standard, (iv) X.509 attribute certificates attached to X.509 certificates, (v) API technology and (vi) other commercially available technology or potential software or data sharing solution. 

In the US, FinCEN recently confirmed the applicability of the travel rule to transmissions of funds involving virtual currency. 

In Canada, the travel rule applies to prescribed electronic funds transfers which applies to, among others, money services businesses. Furthermore, the recent amendments to the PCMLFTR regulations will require the collection of "virtual currency exchange transaction tickets" where virtual currency is exchanged for funds, funds are exchanged for virtual currency or one virtual currency is exchanged for another.  These transaction tickets are required to include:

  • the date of the transaction;
  • in the case of a transaction of $1,000 or more, the name and address of the person or entity that requests the exchange, the nature of their principal business or their occupation and, in the case of a person, their date of birth;
  • the type and amount of each type of funds and each of the virtual currencies involved in the payment made and received by the person or entity that requests the exchange;
  • the method by which the payment is made and received;
  • the exchange rates used and their source;
  • the number of every account that is affected by the transaction, the type of account and the name of each account holder;
  • every reference number that is connected to the transaction and has a function equivalent to that of an account number; and
  • every transaction identifier, including the sending and receiving addresses.


AML regulators at both the domestic and global level continue to grapple with the evolving virtual currency and virtual asset industry and underlying technologies.  In Canada, the FATF Guidance coincides with the issuance of the recent PCMLTFR amendments relating to virtual currency.  Further guidance from Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") will follow providing further colour on these amendments.  Entities operating in the virtual asset space should pay close attention to both the recent amendments and the forthcoming guidance.  


1       The FATF is an intergovernmental policy-making body that was established in 1989. The FATF sets standards and promotes the implementation of legal, regulatory, and operational measures to combat threats to the integrity of the international financial system, including money laundering and financing terrorism.

To view the original article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions