As this series has explored over the past few weeks, blockchain technology has created a number of opportunities across various sectors. The use of cryptocurrencies on the blockchain can however frustrate the traditional CDD model on which traditional AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) regimes depend.
With their potential to enable faceless and borderless transactions, cryptocurrencies are exposed to a heightened risk of ML/FT. The recent increase in the uptake and use of cryptocurrencies has forced European and national policymakers to take steps to establish an AML/CFT framework specifically targeting cryptocurrencies and related services.
Locally, the main players under the Virtual Financial Assets (‘VFA’) Act, being VFA Issuers, Licence-holders and Agents, are classified as ‘subject persons’ for the purposes of AML/CFT regulation, and are obliged to undertake risk assessments, apply customer due diligence measures, monitor transactions on an ongoing basis, and report any suspicions to the competent authority, amongst other tasks.
To address the contemporary challenges that cryptocurrencies present, the Financial Intelligence Analysis Unit (FIAU) recently published a consultation document that sets out guidance specific to the VFA sector, providing practical insight as to how the broader AML/CFT framework should be interpreted in the context of VFA-related services.
It is pertinent to note that the Maltese AML/CFT legislation applicable to the VFA sector goes beyond the scope of the EU Fifth AML Directive, which is to take effect by January 10, 2020. For the purposes of the latter regime, it is only providers engaged in exchange services between virtual currencies and fiat currencies (cryptocurrency exchanges) and custodian wallet providers that are subject to AML/CFT obligations, whereas local legislation imposes AML/CFT obligations on all VFA service providers.
In adopting this cautious approach, the local legislator aims to safeguard the high standard in the AML/CFT systems and controls promoted by the VFA sector while effectively curtailing the misuse of cryptocurrencies.
This piece forms part of Camilleri Preziosi’s ‘Beyond Blockchain’ weekly series, in which members of the firm’s Blockchain and Fintech teams map out how the landscape has evolved since the ‘Unravelling Blockchain’ series published earlier this year. For further information, please contact us on blockchain@camilleripreziosi.com.