Financial Crime World

Virtual Assets: The New Frontier of Finance

The financial sector is undergoing a significant transformation with the rise of virtual assets (VAs). Virtual Asset Service Providers (VASPs) are playing a crucial role in facilitating transactions and managing risks.

VASP Channels and Sectors

The Risk Assessment Working Group has identified 27 VASP channels that interact with various sectors in Mauritius. These channels include:

  • Virtual asset wallet providers
  • Exchanges
  • Broking/payment processing
  • Management providers
  • And others

Formal Sector: Regulated Banking and Non-Bank Financial Institutions (NBFI)

Two formal sectors, banking and non-bank financial institutions (NBFI), have been identified as interacting with seven VASP channels. These sectors are subject to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations.

Informal Sector: Unregulated Players

The informal sector captures players, actors, entities, platforms, and tokens that operate outside traditional AML/CFT compliance frameworks. This ecosystem is characterized by a lack of corporate accountability to regulators, making it vulnerable to illicit financing.

Key Findings

  • Virtual asset wallet providers facilitate holding, storing, and transferring VAs.
  • Exchanges engage in the business of VA exchange for fiat currency or other virtual assets.
  • Broking involves arranging transactions involving virtual assets or involving virtual assets and fiat currency.
  • Management providers invest in VAs, distribute funds that invest in VAs, and provide guidance on risk management.

Risk Assessment Report

The Risk Assessment Working Group has identified key risks associated with the interaction between VASP channels and sectors. These risks include:

  • Money laundering and terrorist financing threats
  • Lack of regulatory oversight in the informal sector
  • Insufficient AML/CFT compliance in some formal sectors

Conclusion

As virtual assets continue to grow, it is essential for regulators and financial institutions to stay ahead of the curve and address these risks. By understanding the interactions between VASP channels and sectors, we can develop effective strategies to mitigate risks and promote a safe and secure financial environment.

Recommendations

  • Enhance AML/CFT compliance in formal sectors
  • Implement stricter regulations in the informal sector
  • Develop training programs for VASPs and their staff
  • Establish cooperation agreements between regulatory bodies and law enforcement agencies

By working together, we can ensure that the virtual asset landscape remains a positive force for economic growth and development.