How will Facebook deal with the virtual asset service provider issue (VASP) on the Diem blockchain?

When you want to buy more cryptocurrencies or sell, where do you go? The answer may be VASP. When you receive Bitcoin, where do you end up sending it? It may also be VASP. Virtual Asset Service Provider (VASP) includes almost any platform you use to buy, sell, exchange or manage virtual assets (VA) (also known as cryptocurrency).

VASP is a term coined by the Financial Action Task Force (FATF), an international intergovernmental organization that publishes financial standards that promote supervision to prevent money laundering and the financing of terrorism.

This article will help you understand what virtual asset service providers are, how they will work in a permissioned blockchain environment such as the Diem project supported by Facebook, and how it can be applied to permissionless blockchains.

Contents of this article

What is a virtual asset service provider (VASP)?

What is virtual asset service?

How will Facebook define and handle VASP?

Is the decentralized exchange (DEX) a VASP?

Is it VASP to issue virtual assets?

Does the exchange and transfer of virtual assets belong to VASP?

in conclusion

What is a virtual asset service provider (VASP)?

According to the provisions of the Financial Action Task Force (FATF), a virtual asset service provider (VASP) is any natural or legal person that exchanges, sells or transfers virtual assets (VA) and provides another natural person with tools to control virtual assets. Or legal person. Essentially, if a platform allows you to exchange fiat or other cryptocurrencies, buy or sell cryptocurrencies, and keep your digital assets, then it is most likely a VASP.

The Financial Action Task Force added the definition of virtual assets and virtual asset service providers in 2018. They define their meaning so that everyone within the jurisdiction of the Financial Action Task Force imposes appropriate AML/CFT (Anti-Money Laundering/Combating Terrorist Financing) requirements on them and ensures that they do comply with their obligations.

Due to the need to comply with these requirements, private, permissioned blockchains (such as the upcoming Diem blockchain supported by Facebook) must comply with this regulatory framework because they fall under the jurisdiction of the FATF. This means that centralized and decentralized applications that want to run on the licensed Diem blockchain require due diligence to demonstrate compliance.

What is virtual asset service?

Virtual asset services include:

1. Exchange between virtual assets and legal tender

2. Exchange between different virtual assets

3. Transfer virtual assets

4. Store or manage virtual assets or tools that allow users to control their virtual assets

5. Participate in or provide financial services related to the issuer’s offer and/or sale of virtual assets

If a company conducts any of these businesses, they are classified as VASP and therefore must comply with the regulations of the Financial Action Task Force (FATF) jurisdiction. Hong Kong is under the jurisdiction of FATF. Last year, they proposed a new licensing system for VASP to implement FATF’s recommendations. But their new system only applies to their defined VASP, excluding decentralized exchanges (DEX), encrypted wallets, ICO platforms, etc.

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However, if we look at the standard considered by the FATF as a VASP, it includes most exchanges and NFT markets where assets are under custody. They themselves exchange virtual assets for other virtual assets or fiat currencies. Most wallets also meet the standard because they allow you to hold and manage currencies and transfer virtual assets, as well as ICO platforms because they provide virtual assets. Bitcoin ATMs, OTC counters, and even some gambling platforms can be regarded as virtual asset service providers because they all provide at least one virtual asset service.

Peer-to-peer (P2P) transactions are currently not within the scope of virtual asset services because there is no intermediary financial institution between the individuals involved in the transaction. Usually, the working group focuses on the financial system and third-party platforms.

How will Facebook define and handle VASP?

Facebook’s licensed Diem blockchain will face high levels of supervision and scrutiny, as evidenced by the fact that they have to change the original name of the project (Libra). Their blockchain will enable virtual asset services, so VASPs running on the network need to comply with regulations to become part of the Diem network.

According to the white paper, any entity that performs transactions, custody or other similar financial services on the Diem blockchain will be regulated and required to conduct risk-based due diligence procedures. VASPs need to prove that they are registered or licensed VASPs in FATF member jurisdictions.

If VASPs are not in a non-FATF jurisdiction or in a jurisdiction without FATF regulations, they will still be allowed to operate on the Diem network without transaction or balance restrictions. But in order to do this, they need to pass the certification process of the Diem Association that complies with the FATF guidelines.

Is the decentralized exchange (DEX) a VASP?

In short, it depends. If DEX belongs to the definition of providing virtual asset services, then it is VASP. Since DEX usually allows you to exchange cryptocurrencies, they fall under the definition of VASP and therefore should be regulated. The only way that DEX does not fall under this definition is for exchanges not to facilitate trading.

Some self-confident DEX peer-to-peer trading platforms are not fully qualified to provide virtual asset services because they do not hold virtual assets or conduct transactions. If the platform only matches and then takes place outside the system, it will not be considered as a VASP.

This means that in many regulated economies, DEX wishing to facilitate trading and operations in these jurisdictions must register or obtain a license. This will comply with the anti-money laundering and anti-financial terrorism laws in the regulated jurisdiction. Dapp itself, the application on the chain, does not fall under the definition of VASP, but if the owner or operator of the Dapp facilitates the exchange or transfer of virtual assets for customers, they may do so.

However, P2P platforms and non-custodial wallets that trade on Diem will still face regulation. Although they are not technically VASPs, they will still be subject to transaction and balance restrictions and other controls.

Is the issuance of encrypted assets a VASP?

The issuance of virtual assets will not only affect the issuer of the asset, but also may affect any VASP that provides services related to the issuance, quotation, sale, distribution and transaction of the virtual asset. Therefore, if you have an ICO, both you and the entities that help sell or distribute your tokens may be subject to scrutiny, depending on who is actually handling these new cryptocurrencies.

If you offer or sell your virtual assets to receive fiat currency or different cryptocurrencies, then you will be considered a VASP. Similarly, any platform that promotes the sale or provision of your assets, even if they are not associated with you, will be considered For VASP. It is important to note that even if your virtual assets are not available immediately and are being sold for later delivery, you still belong to the VASP category.

Similarly, funds must be processed on the platform or by your project to be considered VASP. If what a platform does is to facilitate peer-to-peer transactions (P2P), but it does not touch any money, then it does not provide any virtual asset services and is regarded as a provider.

Is the exchange and transfer of virtual assets VASP?

The exchange and transfer of virtual assets constitute two different behaviors. The exchange of virtual assets refers to any service that can provide virtual assets in exchange for legal tender or different virtual assets. Most exchanges fall into this definition because they allow you to exchange cryptocurrencies for fiat currencies or other cryptocurrencies. Many exchanges within the jurisdiction of FATF must have a “know your customer” procedure to verify the identity of the person using the exchange.

Bitcoin ATM also falls into this definition, but who will the local government contact to enforce the regulations? The manufacturer of the ATM is not necessarily the entity that operates the ATM, so the responsibility of becoming a VASP falls on the operator of the machine.

Virtual asset transfer refers to any service that allows users to transfer ownership or control of virtual assets to other users. This includes encrypted wallets that hold users’ private keys for them. If the wallet is non-custodial, meaning that the wallet is not hosted by a third-party financial system, all private keys are generated and managed on the user side. This means that it does not fall into this definition because non-custodial wallets do not control or manage any assets.

An important difference between virtual asset exchange and transfer is that it will not affect those who do it for themselves, which means you will not be considered a VASP using a non-custodial wallet. It only applies to companies or individuals who do this on behalf of others.

However, certain nuances still need to be considered when determining whether an unmanaged wallet is a VASP, because although FATF may not include it in the definition, one of their jurisdictions may still have regulations that apply to it. Just like to VASP. For example, the US regulatory agency FINCEF has put forward new requirements for money service businesses, which are engaged in a variety of businesses, including transfers, transactions, and currency exchange-VASP falls under this definition. These new regulations will affect VASP transactions with non-custodial wallets. If the transaction amount exceeds $3,000, customer due diligence is required.

in conclusion

The role of VASPs in the crypto industry is crucial because they help promote and accelerate mass adoption. Since cryptocurrency and blockchain are still in their infancy, the regulatory framework surrounding them will definitely change in the coming years. Compliance with these regulations is necessary to conduct business in countries that comply with these regulations. This is why the Diem project published in their white paper how they will comply with these standards.

Supervision can make customers feel safer, but strict supervision will hinder use. This is why platforms that provide a way to work within the scope of regulations are critical to mass adoption and the future of the crypto world.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-will-facebook-deal-with-the-virtual-asset-service-provider-issue-vasp-on-the-diem-blockchain/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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