Financial Crime World

Title: Cyprus’ Virtual Asset Market: A New Frontier for Money Laundering and Terrorist Financing Risks

  1. Cyprus should expand its National Risk Assessment (NRA) to include Virtual Assets (VA) and Virtual Asset Service Providers (VASPs).
  2. Cyprus’ Central Bank of Cyprus (CBC), the Financial Services Commission (CySEC), and the Ministry of Interior (MOI) need to collaborate to update their Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) frameworks and regulations.
  3. Cyprus should invest in enhancing its legal system, operational capabilities, and international cooperation to effectively mitigate Money Laundering (ML) and Terrorist Financing (TF) risks related to VA and VASPs.

Limited VA and VASP Activity, Yet Perceived High Risks

  • VA and VASP activity in Cyprus have been limited.
  • However, there is a widespread perception that VA and VASPs are high risk.

Lack of Data and Skills

  • Cyprus has limited systematic data collection, metrics, and training specifically for VA and VASPs.
  • The absence of a designated authority to monitor and investigate unregistered activities highlights the need for further capacity building.

Outdated Regulatory Framework

  • The Cyprus regulatory framework faces challenges in monitoring VA/VASPs due to outdated legislation.
  • The absence of a legal framework for VA and VASPs leaves a regulatory gap.

Recommendations

  1. Regulatory Updates: Cyprus should update its legal framework to include explicit ML/TF measures for VA and VASPs, implement the Travel Rule for VA wire transfers, and provide education to its obliged entities regarding VA/VASP identification.
  2. Awareness among Financial Institutions: Cyprus should ensure that financial institutions are aware of their obligations under the Travel Rule and encourage them to adopt written policies and procedures for VA/VASP activities.
  3. Collaboration among Authorities: The Police, CBC, and CySEC should establish closer collaboration to promote information sharing and capacity building in VA/VASP ML/TF risks.
  4. Data and Metrics: Authorities should collect and maintain data and metrics specific to VA/VASPs, ensure access to specialized cryptocurrency AML compliance and intelligence/blockchain forensics tools, and establish a protocol for updating and communicating VA/VASP-related financial intelligence in real-time.
  5. International Cooperation: Cyprus should consider international cooperation and experience with jurisdictions that have had additional experiences with VA/VASPs to identify lessons and best practices that can aid in strengthening and accelerating its capacity building efforts.

Conclusion

VA and VASPs represent new and evolving challenges to Cyprus’ financial system, with potential implications for ML/TF risks. By taking decisive action to adapt to these emerging risks, Cyprus can strengthen its position as a reputable and responsible International Financial Center (IFC) with effective AML/CFT measures.