Guinea’s Financial Institutions Face Cryptocurrency Crime Threats Amid Growing Demand
The value of all cryptocurrencies has plummeted to just below $1 trillion since June 2022, a significant decline from its peak in November 2021. Despite this volatility, digital assets are here to stay, and traditional financial institutions in Guinea must adapt to the growing demand for digital asset banking and custody services.
Growing Demand for Digital Asset Banking
According to recent research, nearly three-quarters of consumers in Guinea are interested in having digital assets as part of their banking relationship. This trend is forcing traditional financial institutions to consider partnering with virtual asset service providers (VASPs) or launching their own digital assets business to stay competitive.
Threats and Vulnerabilities
However, regulatory uncertainty aside, traditional financial institutions must prioritize addressing the key threats and vulnerabilities related to virtual assets, as outlined in the Treasury’s Action Plan. Any financial institution providing digital assets services must conduct a thorough assessment of direct and indirect risk exposure.
- Partnering with VASPs that offer custody and exchange services can indirectly expose a financial institution to facilitating suspicious transactions through their institution.
- Payment service providers that use conventional operating bank accounts to facilitate digital asset payment services also pose indirect money laundering and terrorist financing risks.
FATF Guidance
The Financial Action Task Force (FATF) has updated its guidance on virtual assets, providing longstanding compliance and due diligence practices outlining anti-money laundering and combating the financing of terrorism measures for financial institutions partnering with VASPs. Traditional risk-based approach recommendations in FATF’s guidance enable financial institutions to cost–effectively adopt these practices by leveraging existing frameworks.
Assessing Counterparties
When partnering with VASPs, traditional financial institutions must conduct counterparty due diligence prior to partnership, as well as ongoing customer due diligence and monitoring on a periodic basis. This includes:
- Confirming whether the VASP has performed a thorough risk assessment of its anti-money laundering and combating the financing of terrorism program.
- Performing a risk assessment of their own.
Key Factors to Consider
Some key factors to consider when assessing a VASP or payment service provider include:
- Size and structure
- Ownership
- Products and services
- Geography
- Channels
By performing the appropriate levels of customer due diligence, traditional financial institutions can create long-lasting business relationships while addressing compliance with evolving regulatory expectations and avoiding reputational risk implications.
Conclusion
As Guinea’s digital assets market continues to grow, financial institutions must remain vigilant in their efforts to meet customer demand without compromising the integrity of their anti-money laundering and combating the financing of terrorism programs. By prioritizing threats and vulnerabilities, assessing counterparties, and considering key factors, traditional financial institutions can ensure a successful transition into the digital asset era.