Balancing Innovation and Regulation: Evaluating Bangladesh's Approach to Virtual Assets and Compliance with FATF Standards

Abstract

The regulatory framework governing financial technology in Bangladesh is still at the nascent stage. While the country was one of the first to adopt mobile-based financial services, including mobile money, it still lacks a comprehensive legal and regulatory framework to effectively address the concerns of money laundering and terrorist financing that are now being posed by emerging technologies, especially virtual assets. Bangladesh essentially follows an unwritten ban on activities related to virtual assets, though it does not fully adhere to the requirements of the Financial Action Task Force (FATF) in Recommendation 15. With global growth in the uptake of financial technologies and a moving landscape regarding the introduction by central banks of new forms of digital currencies, most notably central bank digital currencies, it is high time for Bangladesh to revisit its legislative framework to embrace such technologies, thereby fitting its financial and regulatory systems with FATF standards. The chapter delves into Bangladesh’s legal and regulatory landscape for financial technologies and their alignment with FATF standards, especially Recommendation 15. It examines Bangladesh’s current laws, regulations, and policy proposals in relation to money laundering and terrorist financing and critically assesses its regulatory stance on virtual assets. The chapter later explores opportunities and challenges related to the adoption of cryptocurrencies and other virtual assets from the government’s and central banks’ perspectives. It also proposes a policy framework for regulators to harmonize financial innovation with FATF standards and domestic legislation. This discussion particularly highlights how Bangladesh can leverage emerging technologies to meet FATF mandates and modernize its traditional financial systems.