Virtual Asset Ecosystem Sees Growing Complexity

A new report by the Risk Assessment Working Group has shed light on the rapidly evolving virtual asset ecosystem, highlighting the need for effective strategies to combat money laundering and terrorist financing (ML/TF) threats.

Channels in the Virtual Asset Ecosystem

The report identified various channels through which virtual assets are being used, including:

Virtual Asset Wallet Providers
Exchanges
Broking/Payment Processing
Management Providers
Initial Coin Offering (ICO) Providers
Investment Providers
Validators/Miners/Administrators
Emerging Products: Crypto Escrow services and Custodian Services

These channels interact with various sectors, including:

Banking
Non-Banking Financial Institutions (NBFI)
Trust and Company Service Providers
Casinos
Dealers in Precious Metals and Stones
Real Estate Agents
Accountants
Legal Professionals

The report found that only two sectors, Banking and NBFI, interact with seven VASP channels.

The Informal Sector

The report also highlighted the need to address the informal sector, which includes players, actors, entities, platforms, and tokens that operate outside traditional Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) frameworks. This sector is particularly vulnerable to ML/TF threats due to a lack of corporate accountability and limited regulatory oversight.

Key Findings

27 VASP channels identified
Banking and NBFI sectors interact with seven VASP channels
Informal sector poses significant ML/TF risks due to lack of corporate accountability and limited regulatory oversight
Collaboration between stakeholders is essential to ensure the integrity of the virtual asset market

Recommendations

To mitigate ML/TF risks in the virtual asset ecosystem, we recommend:

Developing effective strategies to combat ML/TF threats
Strengthening cooperation between governments, financial institutions, and technology companies
Implementing robust AML/CFT frameworks for the informal sector
Enhancing corporate accountability and regulatory oversight in the informal sector