There is still ‘significant risk’ around crypto asset service providers, with a ‘very significant’ risk for money laundering and terrorist financing, the Finnish Financial Supervisory Authority (FIN-FSA) reports.
The authority has prepared a risk assessment of the virtual asset service providers it supervises, and found that the chances of criminal risks are still high, and points to real-time activity and global mobility as two factors that could increase the use of crypto to launder funds and to finance terrorism.
Risk occurs especially when virtual funds are being transferred almost instantly, and anywhere in the world, and automatic bots are being used to do real-time activity trading.
“The products and services provided play a decisive role in the risk of a sector or individual entity being exploited in money laundering,” FIN-FSA concludes in the report.
Lack of customer due diligence
Another significant area of risk comes with the lack of customer due diligence, particularly when it comes to the difficulties of identifying parties in digital assets transfers and where they are located.
“Consequently, the provision of virtual asset services also carries the risk of criminally acquired funds being transferred globally and quickly via the services,” FIN-FSA said.
| Risk categories | Risk level |
|---|---|
| Products and services | 4 |
| Geographical location | 2 |
| Customers | 3 |
| Distribution channels | 3 |
| Risk level of risk categories: | 3 |
| Control categories | |
| Risk-based approach | 3 |
| Organization of operations | 3 |
| Customer due diligence | 4 |
| Monitoring | 3 |
| Risk level of control categories | 3 |
| Overall risk level of the sector | 3 |
Shortcomings among risk controls and risk assessment are also identified, and FIN-FSA said that there’s room to improve procedures to monitor ongoing customer relationships. Overall, the combined risks landed on step three of the four-step scale.
New regulations in 2024
This year’s classification of “significant” is the same as the total score in the risk assessment made in 2022 – even though regulations in the crypto market have changed this year. Including such as MiCA, Regulation (EU) 2023/1114 on markets in crypto-assets, which came into force on May 31, and the new Act on Crypto-Asset Service Providers and Crypto-Asset Markets (402/2024) which commenced on June 30.
“The products and services provided play a decisive role in the risk of a sector or individual entity being exploited in money laundering.”
FIN-FSA
Yet, FIN-FSA points out, the sector has only been regulated for a short time, and particularly in other areas not focusing on money laundering or terrorist financing.
Or the fact that crypto service providers operate globally across boarder and it can therefore be difficult to “determine supervisory responsibilities and organise supervision.”