Just under a year after the FATF published updated Recommendations incorporating VASPs and virtual assets in June 2019, including requiring VASPs come up with a solution to comply with FATF Recommendation 16 on sender and recipient information with VC transactions, the crypto industry announced a standard messaging format to fulfil the requirement. It has been an intense journey since the industry and the FATF first met in May 2019, demonstrating an exceptional level of collaboration in the fight against financial crime.
A Joint Working Group on interVASP Messaging Standards (JWG), a body made up of the three leading industry associations, and led by luminaries such as Malcolm Wright, now Advisory Council Chair at Global Digital Finance (GDF) and Chief Compliance Officer at Diginex, and Sian Jones, former regulator and now partner at XReg Consulting, started to promote the idea of a common messaging standard to underpin the different technical solutions that were being promoted by various technical solutions providers. As this initiative could only succeed if the industry came together as one, the Chamber of Digital Commerce, International Digital Asset Exchange Association, (IDAXA) and GDF together formed the JWG. Over the course of 18 weeks from December 2019, the JWG swelled to over 130 technical experts from across the breadth of the industry, and regulatory observers also participated. The JWG was also involved in active discussions with the FATF and regulatory observers as the standard developed until in May 2020, “IVMS101” was born.
OECD Global Blockchain Policy Forum L to R; Tom Neylan (FATF), Sandra Garcia (US Treasury), Ron Tucker (IDAXA), Takahide Habuchi, (FSA Japan) and Malcom Wright (GDF) – “Preventing ML & TF: The new FATF Standards on Virtual assets” – September 2019
IVMS101 is purely and simply a common message format rather than the delivery or storage mechanism for the transfer of data. It was designed to meet the absolute requirements of FATF Recommendation 16 in both a technical sense whilst still being efficient. Like the ISO20022 for payments, this standard is intended over time to apply to all VASP transactions, catering for unique and specific attributes. The agreed message standard allows for efficient message transformation and storage at both ends, regardless of the technical transmission and storage infrastructure used. The standard will identify the pseudonymous senders and receivers of crypto payments, with such information “traveling” with each transaction.
Notwithstanding, the naturally competitive nature within the crypto industry, the level of collaboration has been impressive, and is set to continue as the journey is not yet over. What IVMS101 has proved is that the industry is not coming together just to find a fix that keeps regulators happy, but a recognition that the crypto ecosystem needs robust standards to ensure that criminals and terrorist financiers do not exploit vulnerabilities, that gaps once identified can be plugged, and that important sources of information for legitimate law enforcement enquiries are available.
Whilst the crypto coalition has come a long way, now a new phase begins – execution. This creates a new set of challenges but with a successful track record and industry collaboration more the norm, the opportunity for successful outcomes has increased.
Several technical pilots are underway, most of which have now committed to adopting IVMS101. It is expected that the industry will coalesce from multiple pilots into a select number of maturing solutions for both transmission and data storage. As the technical pilots continue and a final solution or solutions emerge, VASPs can stay alert in their compliance activities and be prepared, for example:
- by ensuring KYC is up-to-date so as to be ready to transmit the required information;
- by adopting IVMS101 to transform outbound messages and prepare for inbound messages; and
- by ensuring a filtering tool is in place to support effective mitigation of facilitating payments to / from prohibited parties such as sanctioned persons.
By delivering an industry standard in less than a year, and in time for FATF to consider its work before and at it’s annual summer discussions, the industry gains credibility. As Malcom Wright told Financial Crime News, “if trust is the sum of all promises, by delivering agreement on a common standard to support the so called crypto travel rule, we increase the levels of trust between our industry, regulators and law enforcement. Whilst there is more to do, this is a positive for all of us, except for those seeking to exploit crypto for illicit purposes.”