Slovenia’s Cryptocurrency Market Faces Financial Crime Concerns as Demand for Digital Assets Grows

Introduction

The cryptocurrency market is continuing to fluctuate, with a current value hovering just below $1 trillion. This growth has led to increased pressure on Slovenian financial institutions to adapt to changing consumer demand. Research by Raddon Research Insights reveals that 28% of Slovenian consumers are interested in digital asset banking and custody services, forcing traditional banks to either get on board or risk losing market share to fintech companies.

Risks Associated with Digital Assets

However, the shift towards digital assets comes with risks. The Treasury’s Action Plan highlights key threats, vulnerabilities, and illicit financing risks related to virtual assets. These include:

• Partnering with Virtual Asset Service Providers (VASPs) can indirectly expose institutions to facilitating suspicious transactions
• Payment service providers using conventional operating bank accounts pose indirect money laundering and terrorist financing risks

Mitigating Risks through AML/CFT Measures

To mitigate these risks, traditional financial institutions in Slovenia must adopt robust Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) measures. The Financial Action Task Force’s (FATF) updated guidance on virtual assets provides recommendations for due diligence and risk assessments, which can be leveraged by existing AML/ CFT programs.

Key Factors to Assess when Partnering with VASPs

When partnering with VASPs, financial institutions must conduct thorough counterparty due diligence, including:

• Verifying whether the provider has performed a risk assessment of its own AML/CFT program
• Assessing factors such as:
  • Size and structure of the provider
  • Ownership and products/services offered
  • Geography and channels used to interact with clients

Importance of Customer Due Diligence

By performing appropriate levels of customer due diligence, traditional financial institutions in Slovenia can create long-lasting business relationships while addressing evolving regulatory expectations and avoiding reputational risk implications.

Conclusion

In a country with a growing fintech sector, Slovenia’s financial institutions face an uphill battle in balancing customer demand for digital assets with the need for robust risk management practices. As the market continues to evolve, it remains to be seen whether they will rise to the challenge and establish themselves as leaders in the field of cryptocurrency and financial crime prevention.