In recent years cryptocurrencies have experienced a constant growth in popularity and adoption by an increasing number of users.
With a broader adoption, the industry has also seen an increase in the number of malicious behaviors by bad players that leverage the anonymous and digital nature of cryptocurrencies to carry on illicit activities. Cryptocurrency has been long used for payment of illicit activities or goods, and for money laundering, and in the recent years its usage has been extended to scams, ransomware payments , funds theft or terrorism financing.
The growth in the adoption of cryptocurrencies and other virtual assets, as well as the increase in the illicit activities that leverages them for malicious purposes, has led to international finance organizations to get involved and start regulating to increase the visibility and control over the asset streams, and identification of sources and destination of their transactions.
Financial Action Task Force (FATF) has been specially active regarding regulations, publishing a series of recommendations to develop end-to-end anti money laundering (AML) and Counter-Financing of Terrorism (CFT), and regulate digital assets (or virtual assets - VA as defined in their recommendations), Virtual Assets Service Providers (VASP) and Virtual Asset transactions. These recommendations are meant to be implemented by local regulators, and FTAF will conduct a 12-month review in June 2020.
FATF establishes a series of definitions and situations where these recommendations must be enforced.
A Virtual Asset Service Provider is defined as any natural or legal person conducting any of the following crypto-to-crypto or fiat-to-crypto operations:
- Exchange between virtual assets and fiat currencies.
- Exchange between one or more forms of virtual assets.
- Transfer of virtual assets and safekeeping or administration of virtual assets or instruments enabling control over virtual assets.
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
FATF Recommendation 10 and FATF Recommendation 16 establish that any transaction above 1,000 USD or 1,000 EUR must be recorded by the VASP. Records must contain information about both the transaction originator and the transaction beneficiary, including names, wallet addresses and other information.
This information needs to be obtained and verified when performing a transfer of virtual assets on behalf of a customer, and transmitted to a receiving Virtual Asset Service Provider. This requirement is known as the Travel Rule.
At CYBAVO our goal is to provide solutions designed to help our customers to be compliant with regulations. Our enterprise management platform for VASPs includes several features aiming to provide transparency, accountability and immutability over virtual assets transactions and records, such as segregated roles and permissions, auditing tools, immutable logs and more.
In that direction, being able to monitor the validity or health of an address will allow crypto exchanges, fund managers and other VASPs to evaluate the risk and to take reasonable protection and contingency actions to protect their customers’ funds. We have been working to include a new set of features which will help our customers in their effort to be transparent and ultimately regulation compliant.
The first feature is a blacklist which allows to detect addresses associated with illicit activities such as scams, money laundering, terrorism financing and more. Over the last year we have reinforced our intelligence unit, closely working with different sources and companies like UnBlock Analysis to receive updated information regarding wallets and addresses used for illegal activities. This feature helps our customers monitor by default the transaction withdrawal addresses, and it will trigger an alert displaying what type of risk is associated with a specific address. With such information in hand, VASPs will be able to take the necessary actions to mitigate any potential risk of passively participating in an illicit activity or being scammed.
By June 2020, CYBAVO VAULT virtual asset management platform will also provide crypto exchanges, fund managers and other virtual asset service providers the tools to automatically register and securely store and share all transaction data to be compliant with the FTAF Travel Rule for VASPs. CYBAVO is also working with other industry leaders providing compliance solutions like Sygna, to integrate the best FATF-ready services to securely share transmittal compliance data with other VASPs.
Get in touch with us to know more about how our solutions can help your company to be compliant with the latest FATF recommendations.