What AML/KYC Frameworks Cover
AML/KYC obligations for VASPs and financial institutions encompass: (1) Customer Due Diligence (CDD) — verifying the identity of customers before establishing business relationships; (2) Enhanced Due Diligence (EDD) — for high-risk customers, PEPs, and high-risk jurisdictions; (3) Ongoing Transaction Monitoring — detecting unusual or suspicious transaction patterns; (4) Suspicious Activity Reporting (SAR) — mandatory filing with Financial Intelligence Units; (5) Travel Rule compliance under FATF Recommendation 16 — transmitting beneficiary information for transfers above USD 1,000.
Who Must Comply
The following entities are subject to AML & KYC Compliance Hub obligations:
- →Virtual asset exchanges and trading platforms
- →Crypto custodians and wallet providers
- →Banks and payment institutions handling crypto
- →DeFi protocol operators with identifiable control
- →NFT marketplaces processing significant volumes
- →Crypto lending and borrowing platforms
Penalties and Enforcement History
AML penalties are uncapped in most jurisdictions and may include criminal prosecution of individuals. The FATF grey-list and black-list mechanisms create significant market access restrictions for jurisdictions failing to implement adequate AML frameworks. Institutional fines have exceeded $10 billion in individual cases.
Enforcement Timeline
Regulatory Comparison
| Dimension | FATF Rec. 16 | 6AMLD (EU) | FinCEN (US) |
|---|---|---|---|
| Applicability | Global VASPs and FIs | EU financial institutions | U.S. money services businesses |
| Max Fine | Jurisdiction-dependent | Criminal penalties + license revocation | Unlimited civil + criminal |
| Enforcement Body | National FIUs | EU AMLA + NCAs | FinCEN + DOJ |
| Compliance Timeline | Varies by jurisdiction | Q4 2024 (6AMLD) | Immediate (Bank Secrecy Act) |
| Officer Requirement | AML Compliance Officer | MLRO | Bank Secrecy Act Officer |
Mitigation Strategy
Deploy a FATF Recommendation 16-compliant Travel Rule solution for all virtual asset transfers above USD 1,000. Verify counterpart VASP identity and obtain/transmit originator and beneficiary information. Document your Travel Rule policy and maintain records for five years.
Implement a risk-based CDD programme including identity verification, beneficial ownership determination, and PEP/sanctions screening. Apply Enhanced Due Diligence to high-risk customers, high-risk jurisdictions, and unusual transaction patterns. Document all CDD decisions.
Implement automated transaction monitoring with rules calibrated to your VASP risk profile. Establish a SAR filing process with clear escalation procedures. Train compliance staff on red-flag recognition. Conduct annual independent AML/CFT programme reviews.
Frequently Asked Questions
A: FATF Recommendation 16 applies the Travel Rule to virtual asset transfers at or above USD/EUR 1,000. Originating VASPs must transmit originator name, account number, address, national identity number, and date/place of birth. Beneficiary VASPs must obtain and hold beneficiary information. Some jurisdictions apply lower thresholds.
A: FATF's updated 2021 Guidance states that if a DeFi protocol is controlled or influenced by an owner/operator who provides VASP services, Travel Rule obligations apply. Truly decentralised protocols without an identifiable controlling entity remain in regulatory limbo, but FATF has signalled intent to bring all functionally equivalent activities within scope.
A: SAR filing is triggered by knowledge or suspicion that a transaction involves proceeds of crime, is related to terrorist financing, or involves a sanctioned party. Common triggers include: structuring (breaking transactions to avoid thresholds), sudden large deposits inconsistent with profile, rapid movement to high-risk jurisdictions, and transactions involving mixer/tumbler services.