Consultation Paper on AML requirements for VFA Activities

Chetcuti Cauchi | Published on 02 Nov 2018

Consultation Paper on AML requirements for VFA Activities

Proposed guidance on the application of AML/CFT obligations for VFA Sector

On the 31st October, the Financial Intelligence Analysis Unit (FIAU) issued a Consultation Paper on the application of Anti-Money Laundering (AML) and Countering the Funding of Terrorism (CFT) obligations to the Virtual Financial Assets (VFA) Sector. 

Since all three Blockchain Acts have officially taken force of law as of 1st November, the FIAU has taken it within its stride to issue a consultation paper addressing the risks posed by the VFA sector in relation to AML and CFT obligations. 

Application of AML and CFT Obligations

Although it is upheld that VFA Agents, Issuers and licence holders (collectively referred to as VFA operators) are all subject to the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR), these regulations do not specifically cater for VFA Activities. This presents particular risks and challenges, and hence, the FIAU has produced sector-specific guidance for VFA operators to meet the obligations related to AML and CFT. 

Malta, along with other EU member states, are subject to EU Directive 2018/843, commonly referred to as the 5th AMLD. This directive has specifically extended its application to include the activities of persons providing services to safeguard cryptographic keys in the name of its customers, as well as the activities of those engaged in exchange services between virtual currencies and FIAT currencies. Although the deadline for the transposition of this directive is officially 2020, Malta has anticipated the risks which may be posed by the activities of VFAs and has therefore transposed such laws into its domestic law, ensuring its immediate application.

The FIAU’s efforts 

The FIAU has introduced Sector-Specific Implementing Procedures as a form of guidance for VFA operators on how AML and CFT obligations arising from the Prevention of Money Laundering Act and the Implementing Procedures issued by the FIAU are to be followed. The implementing procedures found within the consultation paper are structure in such a way as to indicate directly to whom the particular sections will apply. The FIAU has examined the risks associated with the activities of VFA operators, VFA Agents, VFA Issuers and VFA licence holders specifically, both in relation to its business risks, as well as its customer risks. Within each section the Authority has indicated any reporting requirements, training, record keeping and reporting which must be carried out, along with due diligence checks and procedures, particularly in relation to the determination of the source of funds and wealth of customers. 

The obligations posed within the consultation paper are not final and in fact, the FIAU is encouraging prospective VFA agents, issuers, licence holders as well as interested parties to provide their proposals and give feedback to the FIAU on how the application of AML and CFT to the VFA Sector can be improved. 

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