Falklands' Finances at Risk

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As the aggregate market capitalization of all crypto-assets continues to hover just below $1 trillion, traditional financial institutions in the Falkland Islands (Malvinas) are faced with the daunting task of addressing the growing demand for digital asset banking and custody services.

Growing Demand for Digital Asset Services

A recent national consumer research by Raddon Research Insights revealed that 28 percent of consumers are extremely interested in having digital assets services as part of their banking relationship.

Identifying Key Threats and Vulnerabilities

However, regulatory uncertainty aside, financial institutions must prioritize identifying and understanding key threats, vulnerabilities, and illicit financing risks related to virtual assets. According to the Treasury’s Action Plan, a thorough assessment of direct and indirect risk exposure is crucial when providing digital asset services such as issuance, custody, exchange, or trading services.

Indirect Risks

For instance:

Partnering with Virtual Asset Service Providers (VASPs) that offer both custody and exchange services can indirectly expose financial institutions to facilitating suspicious transactions.
Payment service providers that use conventional operating bank accounts to deposit or withdraw fiat funds pose indirect Money Laundering/Terrorist Financing (ML/TF) risks.

Compliance and Due Diligence Practices

The Financial Action Task Force’s (FATF) updated guidance on virtual assets provides longstanding compliance and due diligence practices outlining Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures that can be applied when partnering with VASPs. The traditional risk-based approach recommendations in FATF’s guidance put financial institutions in a good position to cost-effectively adopt these practices by leveraging existing frameworks used for customer due diligence and risk assessments.

Recommended Due Diligence

As part of this recommended due diligence, financial institutions should:

Confirm whether a VASP or payments service provider has performed a thorough risk assessment of its AML/CFT program.
Perform a risk assessment of their own to understand factors such as:
- Size and structure
- Ownership
- Products and services
- Geography
- Channels

Conclusion

By performing the appropriate levels of customer due diligence regarding strategic alliances with VASPs and payments service providers, financial institutions can increase their likelihood of creating long-lasting business relationships while addressing compliance with evolving regulatory expectations. As the digital assets markets continue to see growth, financial institutions in the Falkland Islands (Malvinas) must remain vigilant in their efforts to meet customer demand without compromising the integrity of their AML/CFT programs.