Financial Crime World

VA Exchangers: A Growing Industry with Significant Risks

As the virtual asset (VA) market continues to grow, a new industry has emerged: VA exchange services. These entities act as intermediaries, facilitating transactions between individuals and businesses involving VAs, fiat currency, or other forms of digital assets.

Types of VA Exchange Services

  • VA Exchangers: Companies that provide a platform for users to buy and sell VAs, such as cryptocurrencies like Bitcoin or Ethereum.
    • Examples: Kraken, Bitfinex, Coinbase, Bitstamp, Binance, Coinmama, CEX.IO
  • VA Broking: Arranging transactions involving VAs or fiat currency, including the use of ATMs (Automated Teller Machines), merchants, and cards to facilitate VA transactions.
    • Examples: Bi-directional ATMs that enable users to purchase VAs with cash or debit cards.
  • VA Management Providers: Investing in VAs on behalf of clients, distributing funds that invest in VAs, and offering guidance on risk management, asset segregation, custodianship, and legal aspects.
    • Services include fund management, distribution, and compliance.

High-Risk Sectors

  • Initial Coin Offering (ICO) Providers: Issuing and selling VAs to the public, which can be an attractive way for startups to raise capital but also poses significant risks for investors.
    • ICO providers must ensure that their offerings comply with relevant regulations and are transparent about the use of funds raised.

Interaction between VA SP Channels and Sectors

  • The Risk Assessment Working Group has identified two ecosystems in Mauritius:
    • Formal sector: Regulated by anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.
    • Informal sector: Operating outside these regulations, where ML/TF threats may arise.

Conclusion

The VA exchange industry is growing rapidly, with new companies emerging to cater to this demand. While there are significant risks associated with VAs, including money laundering (ML) and terrorist financing (TF), it is essential that regulators work closely with industry players to ensure compliance with relevant regulations.

In the next article, we will explore the regulatory landscape in more detail, highlighting the challenges and opportunities for VA exchangers operating in Mauritius.