Financial Crime World

Financial Crime on the Rise in South Georgia and South Sandwich Islands

The digital age has brought new challenges for traditional financial institutions in the South Georgia and South Sandwich Islands, a British overseas territory in the southern Atlantic Ocean. According to recent reports, financial crime is surging in this region, prompting concerns about the integrity of the financial system.

Growing Demand for Digital Asset Banking

A significant proportion of consumers (28%) are eager to have digital asset banking and custody services as part of their traditional banking relationship. This escalating demand is forcing traditional financial institutions to adapt or risk losing market share to fintech companies, virtual asset service providers (VASPs), and other payment service providers.

Regulatory Uncertainty

Despite the growing threat of financial crime, regulatory uncertainty remains a major challenge for traditional financial institutions. The Treasury’s publication, Crypto-Assets: Implications for Consumers, Investors, and Businesses, highlights the need for a thorough assessment of both direct and indirect risk exposure.

Key Threats and Vulnerabilities

Traditional financial institutions must prioritize identifying and understanding the key threats, vulnerabilities, and illicit financing risks related to virtual assets. The Treasury’s Action Plan outlines these concerns, emphasizing the importance of:

  • Direct risk exposure: partnering with VASPs that offer custody and exchange services
  • Indirect risk exposure: payment service providers using conventional operating bank accounts to facilitate digital asset payment services

Compliance and Due Diligence Practices

The Financial Action Task Force’s (FATF) updated guidance on virtual assets provides valuable insights into compliance and due diligence practices for partnering with VASPs. Traditional financial institutions should:

  • Conduct counterparty VASP due diligence prior to partnering with VASPs
  • Perform ongoing customer due diligence and monitoring on a periodic basis thereafter
  • Confirm whether a VASP or payment service provider has performed a thorough risk assessment of its anti-money laundering/combating the financing of terrorism (AML/CFT) program
  • Perform a risk assessment of their own to understand factors such as size and structure, ownership, products and services, geography, and channels

Conclusion

The growing threat of financial crime in South Georgia and South Sandwich Islands highlights the need for traditional financial institutions to prioritize digital asset risk management and compliance. By adopting a risk-based approach and conducting thorough due diligence on VASPs and payment service providers, financial institutions can ensure long-term success while maintaining the integrity of their AML/CFT programs.

Recommendations

To mitigate the growing threat of financial crime:

  • Traditional financial institutions should prioritize digital asset risk management and compliance
  • Implement a risk-based approach to identifying and understanding key threats, vulnerabilities, and illicit financing risks related to virtual assets
  • Conduct thorough due diligence on VASPs and payment service providers prior to partnering with them
  • Perform ongoing customer due diligence and monitoring to ensure long-term success while maintaining the integrity of AML/CFT programs.