Montserrat’s Financial Sector Embraces Blockchain Technology to Combat Anti-Money Laundering
The global crypto-asset market has been hovering just below $1 trillion since June 2022, despite a sharp decline from its peak in November 2021. As digital assets continue to gain traction, traditional financial institutions in Montserrat are under pressure to adapt and provide digital asset banking and custody services to meet the escalating demand from consumers.
Consumer Interest in Digital Assets
A national consumer research study revealed that 28 percent of consumers in Montserrat are very or extremely interested in having digital assets services as part of their banking relationship. This trend is expected to force traditional financial institutions to either embark on the digital assets train or risk losing market share to fintech companies, virtual asset service providers (VASPs), and other payment service providers.
Strategic Considerations
Regardless of regulatory uncertainty, Montserrat’s financial institutions must strategically consider answering the call to action by launching their own digital assets business or creating partnerships with VASPs and payments service providers. Financial institutions must prioritize identifying and understanding the key threats, vulnerabilities, and illicit financing risks related to virtual assets.
Key Risks and Vulnerabilities
For example:
- Partnering with VASPs that offer both custody and exchange services can indirectly expose a financial institution to facilitating suspicious transactions through their institution.
- Payment service providers that use conventional operating bank accounts to deposit or withdraw fiat funds to facilitate digital asset payment services also pose indirect money laundering/terrorist financing (ML/TF) risks.
FATF Guidance on Virtual Assets
The Financial Action Task Force’s (FATF) updated guidance on virtual assets provides compliance and due diligence practices outlining anti-money laundering/countering 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 within functioning AML/CFT programs.
Due Diligence Recommendations
As part of the recommended due diligence, Montserrat’s 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, and channels.
Conclusion
By performing the appropriate levels of customer due diligence regarding strategic alliances with VASPs and payments service providers, Montserrat’s financial institutions increase their likelihood of creating long-lasting business relationships while addressing compliance with evolving regulatory expectations. As the digital assets markets continue to grow, financial institutions in Montserrat must remain vigilant in their efforts to meet customer demand without compromising the integrity of their AML/CFT programs.