The Malta Financial Services Authority (MFSA) has appointed U.S. cybersecurity company Ciphertrace to help with compliance monitoring of crypto assets. Ciphertrace will be expected to keep track of transactions that pass through local crypto exchanges and digital wallets including ICOs, screening for potential money laundering and terrorism financing violations.
Detecting Illicit Financial Flows
The MFSA is currently sifting through applications from 29 cryptocurrency businesses that are seeking approval to operate as what are known as virtual financial agents (VFAs), the Times of Malta reported on March 11. Once the VFAs have been licensed, understood to be by the end of the month, businesses are expected to submit further applications to operate cryptocurrency exchanges, wallets and initial coin offerings.
Ciphertrace will be required to track every asset that passes through the virtual financial agents, even when reasonable caution has been taken by the VFAs to prevent cases of illicit financial flows by individuals and businesses.
“Being strongly aware of the money laundering and financing of terrorism risks associated with entities operating in this sphere, the decision has been taken to engage the services of Ciphertrace in order to reduce fraud and detect transactions with illegal sources of funds,” Joseph Cuschieri, CEO of MFSA, was quoted as saying. He added:
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.
Building Relationships With Banks
Ciphertrace is an American blockchain security company founded by Silicon Valley entrepreneurs in 2015. Through its supervisory technology tool (Suptech), the company offers cryptocurrency anti-money laundering, cryptocurrency forensics, and blockchain threat intelligence solutions.
The company uses machine learning to de-anonymize transactions, helping regulators to evaluate and monitor the trustworthiness of crypto asset businesses. This solution tracks the risk exposure of virtual asset businesses including cryptocurrency exchanges, collective investment schemes and ICOs to measure potential exposure.
“Suptech will allow the MFSA to monitor the activities of crypto businesses both pre- as well as post-authorization stage,” said Dave Jevans, CEO of Ciphertrace. He explained that crypto businesses have a tough time opening bank accounts due to perceived risk.
However, banks and other financial institutions have started using the Ciphertrace compliance monitoring tool “to help decide which virtual asset businesses to trust as corporate customers. These insights help banks avoid de-risking by turning away valuable customers in this lucrative and fast growing sector,” he detailed.
According to the Times of Malta, local banks have been reluctant to open cryptocurrency business accounts in the country, arguing such operations are outside their risk appetite. As a result, the government has now stepped in, holding talks with various banks “to have a better understanding of the industry.”
The International Monetary Fund has recently cautioned the Maltese government to handle the crypto industry with care. It said 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.”
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