Section III of the Draft Guidance for a risk-based approach to VAs and VASPs paves way for the establishment of efficient measures that allows the identification and mitigation of risks associated with covered VA activities, the application of control measures, the imposition of licensing and registration requirements, and implementation of effective supervision over related financial activities of FIs. The propagation of the said approach also includes national cooperation and coordination as a response to AML/CFT policies, and is therefore directly applicable to the regulation and supervision of covered VA activities. Based on this fact, the right to prohibit VA activities is bestowed upon respective jurisdictions based on their assessment of the risk and national regulatory context. Engagement in ML, TF, and PF corresponds to an offense that should extend to any type of property, regardless of its value, that directly represents the proceeds of crime, including in the context of VA.

The proper accounting of debt securities entails the necessity to accrue interests on a day-to-day basis until it becomes due. The holding of bonds until maturity or until interest payment date is not ascertained. They may be sold in between coupon dates, and the seller must be compensated for the accrued interest for the period the bond was held. This is where the determination of a clean and dirty price comes into play.The guidance for the conduct of business in debt securities states that prices of securities are usually quoted clean, excluding any interest that may have accrued between the scheduled coupon payments for the bond. This is the opposite of a dirty price quotation, which reflects the up-to-date accrued interest by including the said value in the price.

The Supervision or Monitoring of VASPs are carried out in accordance with the guidelines provided by Section III of the Draft Guidance for a risk-based approach to virtual assets and virtual asset service providers which pertain to the application of FATF standards to countries and competent authorities. Effective systems are required to be established by countries in order to subject VASPs to supervision and monitoring. These systems must be set up in accordance with national AML/CFT requirements, in response to the FATF Recommendations that align the objectives with respective ML/TF risks. Supervision must be done by competent authorities, other than a self-regulatory body, to conduct an independent risk-based examination and monitoring. These competent authorities are deemed the supervisors, who should be equipped with substantial power s to supervise, monitor, and ascertain the compliance by VASPs with requirements that are deemed relevant in eliminating or reducing the risks associated with money laundering and terrorist financing.

The Singapore Guide to Conduct and Market Practices for the Wholesale Financial Markets emphasizes its applicability in wholesale dealings within exchange-traded and over-the-counter markets for debt securities among others. Debt securities refer to the agreement representing the right held by the holder to claim cash from the issuer or, on the part of the issuer, the obligation to transfer cash to the holder. These include bonds, which are similar to loans, but are often offered to the public and are sold to multiple investors. This is protected by a contractual arrangement, known as a bond indenture, which contains restrictive covenants that is put in place in order to disable an issuer from undertaking endeavors that are in contrast to the interests of bondholders. A trustee is often assigned to ensure compliance.

Operational and Law Enforcement guidelines set out the necessity for VASPs to file STRs with the FIU. In addition to this, the FIUs must possess the ability to access information relevant for the FIU to carry out its respective functions in an efficient manner. These include access to necessary documents and information and the ability to use compulsory measures for the production of records. Furthermore, in conducting an examination of natural or legal individuals, such as VASPs, in order to determine their involvement and control over VA accounts or wallets and mechanisms, the owner must not be notified. These must be done in consideration of a risk based approach that determines whether the activities of a VASP fall under the parameters of transportation of physical monetary instruments and acknowledges how the establishment of requirements for declaration and systems for detection of cross-border movement of such assets would work in practice.

There are unforeseen circumstances that may cause adverse effects on trading and settlement operations. This is defined as market disruption, wherein regular trading and settlement of financial transactions are confronted with barriers, making it either impossible or illegal. The factors that may affect this include governmental actions, natural catastrophes, civil disorders, and other factors that may be beyond the control of an individual market participant. This initiates a severe decline due to the fear that overcomes investors. Unnoticed weaknesses in the foundation of an economy could trigger a crash that results in market disruption. This disruption leads to widespread panic and results in disorderly market conditions.

A DNFBP engaging in VASP activities is immediately subjected to all of the measures for VASPs set forth in the FATF Recommendations. Any entity that is deemed to be engaged in VASP activities are required to be subject to a level of supervision and regulation that is considered substantial by FIs and not to DNFBP supervision. A higher level of supervision must be imposed upon engagement in VASP activities. References to the applications made in Recommendations 10, 11, 12, 15, and 17, among other Recommendations relevant to VASPs may be made in order to determine the means through which regulation and supervision must be carried out, and to ensure that preventive measures are made through the establishment of appropriate CDD, recordkeeping among other required measures to be taken. This will enable a country to maintain a level regulatory playing field across the VASP sector globally and introduce a consistent level of supervision of VASPs due to inherent limitations.

A stock market exchange is a platform in which the trading of stocks is prevalent throughout the day. The purpose of a stock market exchange is to serve as an entity that facilitates the orderly trading and efficient dissemination of price quotes for stocks on the exchange. Despite the known fact that markets trade on a continuous basis, prevailing market practices indicate that foreign exchange markets are open from 5:00am Sydney time, on a Monday morning to 5:00pm New York time on a Friday evening. In the case of working client orders, the times may vary in accordance to contractual arrangements.

It is relevant to ensure the occurrence of information exchange between the public and private sector because it is critical fact in the establishment of a country’s risk reduction strategy. Public authorities are given the control over the appropriate dissemination of risk information in order to pave way for informed and pertinent risk assessments of VASPs. These assessments include the examination of various factors that are attributable to the misuse of VASPs and are indicative of suspicious activity. The cross-border nature and multi-jurisdictional reach of VASPs makes information sharing with international counterparts a critical task. Additionally, information exchange between the supervisors of the banking, securities, commodities, and derivatives sectors and the VASP sector; among law enforcement, intelligence, FIU and VASP supervisors; and between the FIU and the supervisor(s) of the VASP sector, however, are as well essential to maintain proper monitoring and supervision of VASPs.

An interest rate option is a financial derivative that permits the holder derive benefits from the fluctuations in interest rates. Investors are given the opportunity to make speculations with regards to the direction that the interest rates will take in relation to the interest rate options. It is similar to an equity option and can be either a put or a call. Entering into an interest rate option requires the payment of the premium. This premium gives the holder a right, but not the obligation to push through with an agreement made with regards to the rates. If the change in market circumstances reflect a benefit on the part of the holder; in that, the contract becomes profitable, the holder may exercise his right. Interest rate options are inclusive of interest rate swaptions, interest rate caps and floors and bond options. It is important for market participants to adhere to common market practices to acquire their own legal, tax and accounting advice.

Financial intelligence information obtained from FinCEN is utilized by U.S law enforcement in order to orchestrate investigations on digital assets. The FinCEN is provided with access to two key pieces of information that can be utilized in the detection of suspected ML or TF involving digital assets: suspicious activity reports (or STRs) filed by traditional reporting financial institutions, and those filed by digital asset providers that, as money transmitters, convert funds into a digital asset or allow for the storage or exchange of digital assets.

Strong civil and criminal enforcement actions inclined towards combating illicit activity are undermined by the U.S. departments and agencies. The DOJ also takes part in imposing a broad sense of control in order to ensure the prosecution of digital asset providers and individuals who violate U.S. law. In addition, the OFAC has provided clarity with regards to the fact that U.S. sanctions compliance obligations uniform across currencies.

A benchmark administrator is held responsible for overseeing the benchmark administration process. The process constitutes the establishment of a methodology for computing surveyed benchmarks and traded benchmarks, securing adequate documentation for the methodology, an appointment of submitters for all surveyed benchmarks and traded benchmarks and the determination and dissemination of the benchmark; including its accurate and timely compilation, publication and distribution and as well as the provision of assurance with regards to the maintenance of confidentiality.

In March of 2018, reforms were introduced to the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Proceeds in order to take into consideration the exchange of VAs conducted by entities other than Financial Technology Institutions and Credit Institutions as a vulnerable activity. Financial Technology Institutions are permitted to operate with VAs provided that they have the capacity and have obtained authorization from the Bank of Mexico. The guidelines that establish the measures and procedures in terms of AML/CFT related to VAs were published later in September 2018. This is relevant due to the fact that The Central Bank acknowledges that VAs impose significant ML/TF risks, due to its ability to immediately transfer VA to different countries that are incapable of being governed by homogenous controls and prevention measures. The risk-based approach, characterized by the assessment of an applicant’s AML/CFT programs accompanies the registration procedures of Japan and is governed by the JFSA.

A liquidity swap is practically defined by forward/forward transactions that consists of two NDF transactions. Despite the fact that NDF liquidity swap transactions often consider the involvement of the same name on both maturity dates, the involvement of two different names shall be valid unless it is stated otherwise prior to the placement of price or hit. The setting of the start rate for NDF liquidity swap transactions should be guided by the principles in the method applicable to deliverable foreign exchange swap transactions

The Norwegian AML Act that was implemented on October 15, 2018 has laid out the obligations that the VASPs are required to undertake. The Anti-Money Laundering Act undertakes that providers of exchange services between virtual currency and official currency are considered as obliged entities. Virtual currency refers to the digital expression of value that is not issued by a central bank or a government authority, is not associated with a legally established currency and does not hold a legal status of currency or money, but which remains considered as a means of exchange, and which can be transferred, stored or traded electronically. Virtual currency custodianship services refers to the oversight of private cryptographic keys on behalf of customers, taking the responsibility over the transferring, storing or trading of virtual currency to ensure their proper management.

A foreign exchange option is an agreement that provides the buyer with a right, but not the obligation to purchase or sell a certain currency at a specified exchange rate on or before a specified date. A premium is paid to the seller to take advantage of this right. Currency options are one of the most utilized means in which corporations, individuals or financial institutions are given the opportunity to hedge against adverse movements in exchange rates. Foreign exchange options in wholesale financial markets are often quoted in implied volatility terms. In this case, parties simultaneously engage in a delta hedge. However, in the event that the price is quoted in premium terms, a separate delta hedge would generally not be required.

The MAS has set out guidelines that expound on the approach governing the oversight over approved exchanges and RMOs. The RMO regime illustrates how the risk-based approach of the MAS is applied to the market operators, ascertaining that regulatory requirements are substantial to address the risks posed by the market. The regulatory requirements must be established in accordance with the risk profile, nature and scope of the functions of the proposed market operations. In addition, the MAS also attempts to ascertain the absence of any regulatory arbitrages between corporations operating similar market operations with similar risk profiles. The appropriate recognition conditions established by the MAS shall be based on the facts and circumstances of each RMO application. All market operators that are systemically important are required to be regulated as an approved exchange, with no option to be elected as RMO. On the other hand, RMOs may as well grow over time and acquire systemic importance and thus, the MAS recognizes the need to conduct a periodic review of the regulatory status of an RMO and the said RMO may correspondingly apply to MAS to change its status in accordance with the requirements.

Record retention is considered one of the best practices of surveyed and traded benchmarks as it entails the maintenance of information necessary to have a basis for the benchmark determination process. Information with regards to market data and submissions shall remain relevant for at least 5 years from the date of contribution and are, thus, required to be retained for the said period unless some other period shall statutorily be prescribed.

Section V provides an overview of various jurisdictional approaches to regulating and supervising VA financial activities and related providers in order to enable countries to have a reference in terms of developing or enhancing their own national frameworks. In Italy, Decree No. 231 of 2007 was amended by Legislative Decree No. 90 of 2017, that was done in order to subject providers engaged in exchange services between VA and fiat currencies to compliance with AML/CFT requirements. Service providers are obliged to undergo preconditions prior to carrying out their activities in Italy. This includes the registration with the Organismo degli Agenti e dei Mediatori. In addition to this, Italy brought their National Risk Assessment up to date by adopting a new version in March 2019 . These endeavors are also supported by the collection of information conducted by the Italian FIU through STRs and further analysis. This contributes relevant data characterized by detailed information on single transactions, data on the personal and economic profile of the customer or the holder of the wallet and the wallet or account information owned by one or more subjects. However despite this fact, the Bank of Italy has warned consumers of the substantial risks associated with the buying and/or holding of VAs as well as supervised financial intermediaries about the risks that are associated with VASPs.

The governance of benchmark rate setting is governed by a Benchmark Administrator. He shall be given the responsibility for maintaining the overall credibility, governance and supervision of a Benchmark, to ensure that it is representative, reliable, transparent and subject to clear governance and accountability mechanisms To assist the administrators in his endeavors, an oversight committee is established to compose of members from financial institutions and independent professionals for the purpose of conducting supervision and setting up review and challenge key policies and processes that are specifically formulated to govern surveyed benchmarks and traded benchmarks.

The establishment or operation of a market in Singapore of a person or entity may only be permitted if the MAS enables the said entity or person to hold out as an approved exchange, recognized as a RMO or exempted as an exempt market operator (“EMO”) by MAS. Along with the status acquired, an approved exchange may use the title or description “securities exchange”, “stock exchange”, “futures exchange” or “derivatives exchange” in any language. An analysis of market factors in their entirety, shall be the basis upon which the decision as to whether a market should be regulated or exempted. The MAS in addition, possesses the ability to revoke the status given to approved exchanges or RMOs, and thus, require a person previously recognized as an approved exchange or RMO to give notice of the revocation of status. RMOs, however, who also operate overseas securities or futures exchanges, are obliged to seek approval from MAS to make use of such title or description.

It is expected of brokers and submitters to transact in a manner that emphasizes integrity and professionalism, to adopt significant ethical standards with regards to benchmark contributions and maintain substantial policies that ascertains adherence to methodologies utilized for the purpose of traded benchmark contributions, the maintenance of integrity with regards to data gathered through electronically routed trades, the Calculation Agent’s accessibility to the transaction data and the deviation of staff members from undue influence with regards to the benchmark contribution process. Substantiation of benchmark contributions against available objective evidence is not included as it is a requirement under surveyed benchmarks.

Non-deliverable forwards (“NDF”) pertain to forward foreign exchange transactions that are often settled through cash in a currency based on the differential between the contracted price and settlement price. Transaction disputes may arise and are characterized by one of the two parties to the contract having an unmatched position. With regards to this the guidelines strongly suggest that an endeavor must be undertaken by one of the parties, preferably with the consensus of another, in order to neutralize the position. The agreement with regards to the fixing methodology is governed by the guidelines that fall under the settlement position and fixing, and thus, does not reflect the governance of transaction disputes. Likewise, the ability of market participants to authorize a broker to go “choice” for a reasonable period of time in the event that he/she is unable to trade, reflect the guidelines set out under the handling of credit issues, and not transaction disputes.

The establishment of professional standards and the corresponding adherence and integrity of market participants are necessary for the smooth, efficient and fair functioning of a financial market. As the market grows in size, diversity and complexity, the demands for higher ethical conduct and uniform practices increase correspondingly. The SFEMC thus undertook the development of a guide or set of principles of good practice to support the global code in carrying out efforts to address this increasing need. The global code consists of two types of principles. One of which embody generic guidelines whose applicability was made to cater equally to other asset classes. In relation to this, the guide was also established to assist in governing all wholesale dealings in the exchange-traded and over-the-counter markets.

With regards to the dealing of amounts, market participants are discouraged from challenging the amounts presented. If a market participant says, “your amount”, “all yours”, or “all mine”, he/she is deemed committed to honoring the counterparty’s full amount.

The FATF Recommendations subject all jurisdictions to conduct an imposition of specified, activities-based AML/CFT requirements and the main emphasis of the guidance is placed on describing how the Recommendations are carried out to apply to VAs, VA activities, and VASPs in order to assist countries in obtaining a better understanding of how an effective implementation of the FATF Standards may be achieved. This includes the functional equivalence and objectives-based approach. This states that the guidance seeks to provide an ends-based or objectives-based implementation of the relevant FATF Recommendations rather than impose a rigid prescriptive one-size-fits-all regulatory regime across all jurisdictions. A broad depiction of what must be done is laid out, not overly specifying how the implementation must be carried out in order to leave room for different options. Other choices are definitive of different concepts under the FATF recommendations.

Section 137ZK of the SFA mandates individuals to disclose its short positions in any specified capital markets products to MAS, if the short position is equivalent to or exceeds the short position threshold on position day. A person holding a reportable short position is obliged to report his short position to MAS by tendering a Short Position Reporting Form within two business days after position day. This Short Position Reporting Form is lodged by means of the Short Position Reporting System (SPRS) that is accessible through the MAS website. Both the reporting person and his reporting agent are required to have a unique SPRS identifier in order to register a Short Position Reporting Form. The reporting person would have to indicate the position day on which the short position is determined among other things through the Short Position Reporting Form. If the form is lodged by a reporting agent on the reporting person’s behalf, the reporting agent should identify the person to whom the short position belongs.

Although meeting over meals and drinks are considered common practice, it is important that value thresholds must be put in place in order to regulate the utilization of entertainment, gifts and favors as a means of facilitating transactions. Giving expensive gifts and favors to other market participants should be prohibited and the receipt of such gifts shall be made known to management. This should be practiced through the use of considerable judgment with regards to the constitution of an unreasonable gift or favor, especially when the transaction involves sovereign entities or government officials.

Recommendation 1 provides the parameters within which the risk-based approach is identified as applicable. This identification is conducted by taking into consideration the following factors: who should be subject to a country’s regime and how those subject to the AML/CFT regime should be supervised or monitored for compliance with the regime, among others. It is also relevant to undertake the examination of various factors such as the potential ML/TF risks associated with a VASP’s connections and links to several jurisdictions, the nature and scope of the VA account, product, or service, and the nature and scope of the VA payment channel or system among others. The participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset fall among the considerations in determining a virtual asset service provider and thus, does not form part of the elements to be examined with regards to the identification of the best means to reduce risks to an acceptable level.

The guide states the brokers must be prohibited from assuming positions through the closure of a deal before a principal is able to substantiate the price and confirm a deal. It also dictates that market participants are not given the capability to hold brokers to a price if they are not able to substantiate it. It must be ascertained, however, that these brokers promptly notify the market participants of the fact and reason that hinders them from substantiating a firm quote. Moreover, market participants should not insist on a replacement deal at the price or with the counterparty originally proposed by the Broker.