The Financial Action Task Force (FATF) has issued 2015 Guidance calling for a “risk-based approach” to virtual currencies.  This Guidance follows its 2014 initial Report on virtual currencies.  Since FATF’s 2014 Report, virtual currencies, the risks associated with them, and the individuals and entities using them have evolved substantially.  Law enforcement and regulatory agencies across the world have also become more familiar with, and more sophisticated about virtual currencies.

FATF’s 2015 Guidance reflects a sophisticated understanding by FATF’s members of virtual currencies and of the risks associated with their use.  That is very encouraging; not all virtual currencies function the same way or pose the same risks.   Also encouraging, is FATF’s emphasis on employing a risk-based approach to AML/CTF risk involving virtual currencies.  Many law enforcement and regulatory efforts in the earliest days of digital currency assumed that virtual currencies were inherently unlawful or were only a tool to further criminal activity.  The risk-based approach championed by FATF—an approach which specifically points out many lawful, innovative, desirable uses of virtual currencies–acknowledges this important fact.

Criminal enterprises are often early adopters of new technology – often earlier adopters than law enforcement.  Virtual currency wasn’t exempt from this pattern.  But, law enforcement is catching up quickly, as are financial regulators, financial institutions, and other legitimate actors in the global financial system.  FATF’s latest Guidance is certainly evidence of this.