Financial Crime World

Title: Cyprus Tackles Virtual Asset Crime Risks: National Assessment Reveals Gaps and Recommendations

Introduction

The Cyprus Ministry of Finance has finalized a comprehensive National Risk Assessment (NRA) report on virtual assets (VA) and virtual asset service providers (VASPs), marking a significant step forward in the country’s efforts to combat money laundering (ML) and terrorist financing (TF) risks in this emerging sector.

Key Findings of the Assessment

  1. Limited activity: VA or VASP usage remained relatively low in Cyprus as of late 2020.
  2. Limited understanding and experience: Authorities lacked a deep understanding of the ML and TF risks specific to the VA/VASP sector.
  3. Lack of specialized tools and resources: Commercial cryptocurrency AML compliance tools, intelligence/blockchain forensics, and transaction monitoring databases were largely unavailable.
  4. Missing regulatory framework: No travel rule had been implemented, leaving a gap in monitoring VA transactions.
  5. Limited collaboration and training: Authorities had limited access to specialized training and resources for addressing VA/VASP ML/TF risks.

Recommendations for Addressing VA/VASP ML/TF Risks

Based on the findings, the assessment recommended several actions to strengthen Cyprus’ regulatory framework and mitigate ML/TF risks in the VA/VASP sector:

  1. Updating regulatory framework: Central Bank of Cyprus and CySEC should incorporate measures related to VA/VASPs into their respective AML/CFT Directives, including expressly incorporating the travel rule.
  2. Enhancing supervision and education: CySEC should provide education to its supervised obliged entities to help identify suspicious VA-related activities.
  3. Adopting written policies: Financial institutions should adopt clear policies and procedures to comply with VA wire transfer rules.
  4. Building capacity: Authorities should invest in training, technological development, and market intelligence to better understand and address VA/VASP ML/TF risks.
  5. Collaboration and review: Cyprus should collaborate with other experienced jurisdictions, regularly review its VASP registration framework, and consider introducing criminal liability for non-registration as a VASP.

Conclusion

As Cyprus continues to develop its regulatory presence in the VA/VASP sector, this assessment serves as a crucial roadmap to help mitigate ML/TF risks, ultimately safeguarding the nation’s financial system. For the full report, please visit NRA Report Link. The press release announcing the report’s finalization can be found here: Press Release Link.