Crypto Providers at Risk of Money Laundering & Terror Financing, Says FMA

  • Richard Marley
  • December 07, 2021
  • 2 minutes read
  • 1727

The Crypto industry was rated high-risk in the latest sector risk assessment (SRA) of the FMA, where the exposure of several types of financial service providers to illicit activities was highlighted.

According to the results of the SRA, the risk profile for most of the sectors (nine in total) monitored by the FMA had not changed since 2017. Among all the sectors, Virtual Asset Service Providers (VASPs) were found to have the highest risk rating. 

“Since our last assessment the risks of virtual assets, particularly cryptocurrencies, have become more prominent,”  said James Greig, FMA director of supervision.

“Virtual assets allow for greater levels of anonymity and have global reach, making cross-border payments easy.”

The risk rating of the different sectors was calculated by adding up the complexity, liquidity of transactions, and anonymity provided to customers. 

Moreover, the size of the business, the types of products offered, their value, the customer types, country risk, and how products can be bought or sold were also included.

Sector Sector risk 2017 Sector risk 2021
Derivatives issuers High High
VASPs N/A High
Provider of client money or property service Medium-High Medium-High
Equity crowdfunding platforms Medium-low Medium-low 
Financial advice providers (FAPs) Medium-low  Medium-low 
Managed investment scheme managers Medium-low  Medium-low 
Peer-to-peer lending providers Medium-low  Medium-low 
Discretionary investment management services Medium-low  Medium-low 
Licensed supervisors Low Low
Issuers of securities Low Low

The FMA stated that all reporting entities are expected to understand the vulnerabilities and risks associated with VASPs and virtual assets in order to assess the risks whenever it is required.

Cryptocurrency service providers are primarily supervised by the Department of Internal Affairs, with the FMA overlooking a limited number of VASPs. In addition to VASPs, derivatives issuers were also seen to be high-risk sectors. 

“Derivatives issuers are naturally high risk because their products have high liquidity, accounts can be opened easily, and they can have many non-resident customers in higher-risk jurisdictions,” said Greig.

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