The Malta Financial Services Authority has appointed an American company to help it check crypto currency assets.
The authority is currently going through procedures for the approval of cryptocurrency agents – known as virtual financial agents – at least 29 of which have already applied for licences. Once these have been approved, expected by the end of this month, the VFA agents are expected to submit applications for operators like exchanges, wallets and initial coin offerings.
While the VFA agents are expected to do the due diligence on the individuals and entities behind these operators, the MFSA will still require tracking of the assets that flow through them – which is where CipherTrace will come in.
CipherTrace was founded in 2015 by Silicon Valley entrepreneurs and was initially funded by the US Department of Homeland Security Science and Technology and government agency Defense Advanced Research Projects Agency. Its solution was described as being able to gauge and potential risk exposure of businesses including cryptocurrency exchanges, collective investment schemes and initial coin offerings.
“Ciphertrace Compliance Monitoring will provide the MFSA with powerful oversight tools to automate regulatory processes and audit the risk management of virtual asset businesses licensed in Malta,” CEO Joseph Cuschieri said, noting that the MFSA was “strongly aware” of the money laundering and financing of terrorism risks associated with entities operating in this sphere.
The system can be used at both pre- and post-authorisation stages, and uses data encompassing exchanges, addresses, wallets and other entities, profiling everything from criminal addresses and dark markets, to gambling services and high-yield investment products.
The Times of Malta recently reported that the cryptocurrency operators waiting in the winds were champing at the bit as banks were politely declining their business, saying it was outside their “risk appetite”.
Sources said banks were not distinguishing between cryptocurrency and blockchain, even though the two were not always linked.
Parliamentary Secretary for Financial Services Silvio Schembri told the Times of Malta that he was holding talks with different banks and other stakeholders “to have a better understanding of the industry”.
CipherTrace CEO Dave Jevans said that banks often find themselves turning away valuable customers in this lucrative sector, merely because of lack of insight about which businesses to trust as corporate customers.
Applications have been steadily trickling in to the MFSA since the end of November for registration as VFA Agents under the Virtual Financial Assets Act.
The MFSA had told the Times of Malta that it was aiming to issue the first licences within the first quarter.
An authority spokesman had said that the timeline depended on the due diligence assessment – including competence in the field of anti-money laundering and the counter funding of terrorism.
The International Monetary Fund’s recent Financial System Stability Assessment Report urged caution with regards to virtual-asset investments because of their high risk.
The report cautioned that monitoring the sector would require "significant resources with appropriate expertise, such as cyber risk experts, technology experts and lawyers specialised in technology, creating additional challenges for financial authorities to build and retain expertise".
It "strongly encouraged" the authorities to implement the laws and regulations gradually, imposing strict conditions, such as periodic renewal, to any licence.