Cryptography Service Providers Face High Risk of Money Laundering and Terrorism Financing in New Zealand

Cryptocurrency Transactions at High Risk of Illicit Activity

A recent sector risk assessment (SRA) conducted by the Financial Markets Authority (FMA) has identified virtual asset service providers (VASPs) operating in New Zealand as being at high risk of being targeted by money launderers and terrorism financiers.

VASPs Receive Highest Risk Rating

The FMA’s SRA outlined different types of financial service providers’ exposure to illicit financial behavior, with VASPs receiving the highest risk rating. The industry has been warned that the risks associated with VASPs have become more prominent since 2017 due to the anonymity and global reach of cryptocurrencies.

Complexity, Liquidity, and Anonymity Make Virtual Assets Attractive Targets

According to James Greig, director of supervision at the FMA, the complexity, liquidity, and anonymity of virtual assets make them an attractive target for money launderers and terrorism financiers. The agency expects all reporting entities to familiarize themselves with the risks and vulnerabilities associated with VASPs and virtual assets, and incorporate them into risk assessments when appropriate.

Primary Supervisor and Oversight Responsibilities

The Department of Internal Affairs is the primary supervisor of cryptocurrency service providers in New Zealand, while the FMA oversees a small number of VASPs. The 2021 sector risk assessment also reaffirmed the high risks associated with derivatives issuers, which have been targeted by recent anti-money laundering action taken by the FMA.

Retail Trading Platforms at Risk

The agency’s concerns were highlighted earlier this year when it put retail trading platform Sharesies on notice for failing to verify nearly 8,000 customers’ identities and not carrying out adequate due diligence checks. Greig warned that retail investment platforms may be targeted by money launderers due to their rapid growth and potential lack of compliance with anti-money laundering obligations.

Urgent Review and Update Required

The FMA has urged all reporting entities to review the new SRA and update their own risk assessments accordingly, incorporating any new risks and findings. It is essential for the industry to take immediate action to mitigate these risks and ensure compliance with anti-money laundering regulations.

Key Points:

• Virtual asset service providers (VASPs) operating in New Zealand are at high risk of being targeted by money launderers and terrorism financiers.
• The complexity, liquidity, and anonymity of virtual assets make them an attractive target for illicit activity.
• Retail trading platforms may be targeted by money launderers due to their rapid growth and potential lack of compliance with anti-money laundering obligations.
• Reporting entities must review the new SRA and update their risk assessments accordingly to mitigate these risks.