The IOTA Foundation Supports FATF’s Revision of AML/CFT Standards
The IOTA Foundation has announced that it supports the recent revision of the Financial Action Task Force (FATF) with regards to the “Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards” meant to balance the approach to risk management without compromising financial inclusion.
Firstly, IOTA argues that FATF’s proposed review would support proportionate risk-based regulations. According to them, the decision to replace “commensurate” with “proportionate” in risk management discussions may seem “irrelevant,” but presents a significant change towards enhancing regulatory clarity.
Also, IOTA believes that FATF’s proposal would encourage a “supervisory review of risk mitigation measures” while ensuring that financial institutions effectively integrate risk management strategies. Additionally, they argue that the balanced AML/CFT standards update would enable simplified compliance measures.
We fully support FATF’s push for simplified compliance measures in lower-risk scenarios. By reducing barriers to entry, these measures enable startups to develop new business models without unnecessary regulatory hurdles, ultimately fostering growth and competition in the financial sector.
Commenting on the proposal on non-face-to-face interactions, IOTA clarified that digital identity solutions have advanced in remote transactions and, henceforth, should not be recognized as high risk. To them, this section of the review is a positive step towards accessibility to financial services while safeguarding robust AML/CFT.
Apart from the already recognized changes, IOTA proposes that FATF considers the exploration of industry-specific solutions. According to them, this would ensure that users’ privacy is balanced with compliance.
One potential approach is the use of tokenized Know Your Customer (KYC) proofs. A notable example is the IOTA Foundation’s KYC solution developed within the European Blockchain Regulatory Sandbox. This framework provides a scalable, secure, and privacy-preserving method for regulatory compliance in DeFi transactions, ensuring user protection while enabling responsible industry growth.
Concluding its submission, IOTA invited FATF and industry stakeholders for an extensive discussion on this topic as it claims to be committed to engaging in regulatory reviews and deliberations that impact the financial ecosystem.
International Bodies Call for FATF Guidelines Adherence
FATF exists as a body that sets “global anti-money laundering and counter-terrorism and proliferation financing (AML/CFT/CPF) standards.” Recently, it unveiled a consultation process that is reported to assist national regulators in crafting effective policies for financial inclusion with a focus on integrity.
According to its recent blog post, its proposed revision of the AML/CFT standard seems to define relevant indicators and guide regulators and supervisors to amend “disproportionate AML/CFT measures” that result in “undue financial inclusion.”
To align with FATF’s proposed provisions, Pakistan is already discussing “robust digital asset regulation and blockchain innovation” as noted in our earlier post. The International Monetary Fund (IMF) has also urged Kenya to modernize the crypto framework to align with the FATF’s guidelines, as also outlined in our recent post.
Prior to this, IOTA had equally released a report to support the position of the International Organization of Securities Commissions (IOSCO), calling for a tailored regulation to guide the operation of financial experts. As highlighted in our previous article, IOTA believes that an AI-driven monitoring implementation could help identify financial misinformation and protect retail investors.