B. BATBAATAR: WE ARE WORKING TO ESTABLISH A LEGAL ENVIRONMENT TO REGULATE CRYPTOCURRENCY IN MONGOLIA.

What are the actual regulatory requirements for virtual assets?

In recent years, new financial products and services based on advanced technology have emerged in the market, bringing significant changes to the global economy. One of them is virtual assets, such as crypto currencies and tokens. The Financial Action Task Force (FATF) continues to point out that virtual asset services are easy, cheap, and fast, but there is an international tendency to use virtual assets prposes to hide illicit funds and income, and to use it for money laundering and terrorist financing. Therefore, the countries and international organizations take this issue into consideration and demand from all countries to establish a legal environment for virtual assets. FATF requires countries to implement 40 technical recommendations, international standards for preventing money laundering, terrorism financing and the proliferation of weapons of mass destruction. In this regard, Recommendation 15 on new technologies was updated in 2019 and established criteria for virtual assets and virtual asset service providers. Accordingly, Mongolia is required to create a legal framework for virtual assets to further strengthen its anti-money laundering and terrorism financing framework.

We were removed from the FATF gray list last year, and would the next major task be creating a regulatory environment for virtual assets?

Mongolia was removed from the FATF's list of countries with strategic deficiencies in their regimes to combat money laundering and terrorism financing, or the grey list, in October 2020 (within 1 year). Also, in January 2021, Mongolia was removed from the European Union's list of third countries (blacklist) with a high risk of money laundering and terrorism financing. FATF defines virtual assets as digital representation of value that can be digitally transferred, traded, or used for payment or investment purposes. Since Bitcoin, the first virtual asset, was created more than 10 years ago, the industry is constantly evolving based on blockchain technology. Therefore, FATF requires countries to assess their risk of money laundering and terrorism financing related to virtual assets and take preventative measures, as well as to register or license virtual asset service providers, subject them to risk-based supervision, implement sanctions and other enforcement measures, and conduct customer due diligence. So, we need to draft a low that meets FATF's requirements and approve it immediately.

How are other countries regulating VA?

As the virtual asset market continues to grow rapidly based on technological advancements and new types of cryptocurrencies and coins continue to enter the market, trends and developments in the industry continue to change at a rapid pace. Therefore, countries around the world are taking different approaches for virtual assets in accordance with FATF requirements. For example, countries with developing economies have certain restrictions on the use of virtual assets or prohibition. Japan and Singapore are more flexible in supporting economic innovation than some Western countries and Asian countries. In 2016, Japan by adopting a law regulating virtual currency, accepted virtual asset services. In 2020, the Russian Federation adopted the Law on Digital Financial Assets and Digital Currency, effective from 2021. However, in the People's Republic of China, cryptocurrency operations are banned. Also, in countries such as South Korea, Japan, Australia, England, and Switzerland, virtual asset service providers are operating within certain restrictions after licensed by their Financial Regulatory Commission. Currently, there are few virtual asset service providers operating in Mongolia, and in recent years, citizens have started to participate in crypto currency trading on foreign electronic platforms using their international bank cards. And criminal activities involving virtual assets have been registered by law enforcement agencies, which indicates the need for regulation of this sector.

What should be done further?

As for Mongolia, the Financial Information Unit, the Bank of Mongolia, and the Financial Regulatory Commission, in cooperation with other competent authorities, have drafted the law "On Virtual Asset Service Providers" to meet FATF technical requirement and improve the technical compliance rating of and advancing the assessment of Recommendation 15, creating a legal framework for virtual assets, and establishing supervision and enforcement environment. Law" is being drafted. This draft law aims to define virtual asset and virtual asset services in accordance with the FATF requirement, the principles and requirements for virtual asset service providers, their activities, registration, monitoring, rights, obligations, and responsibility.

The adoption of the "Virtual Asset Service Provider Law" is important to create a legal framework for virtual assets, prevent virtual asset service providers from money laundering and terrorism financing risks, and meet FATF's technical requirement.