While it is anticipated that the VFA investigators will do background research on the individuals and companies behind these service providers, the MFSA will still necessitate monitoring of the assets that trickle through them. That is where CipherTrace will arrive.
CipherTrace was established in 2015 by business owners from Silicon Valley and was originally financed by the US Department of Homeland Security Science and Technology and the Defense Advanced Research Projects Agency of government. Its product offering was explained as being able to measure possible corporate financial risk including dealings related to cryptocurrency, overall investment schemes and initial coin offerings.
Commenting on the monitoring plan, CEO Joseph Cuschieri said, “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.”
He further noted 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 both before and after and authorization and uses information including exchanges, addresses, wallets and other entities, scanning everything from criminal addresses and dark markets to gambling and high-yield investment products. The Times of Malta reported recently that the cryptocurrency operators championed their business while the banks politically refused, saying they didn’t want to risk.
Sources indicated that banks did not differentiate between cryptocurrency and blockchain, despite the fact that there may not be any link between them every time. Parliamentary Financial Services Minister Silvio Schembri told the Times that he had talks “to get a better understanding of the industry” with the various banks and other stakeholders.
Dave Jevans, CEO of CipherTrace, said that banks often turn away worthwhile clients in this profitable sector because only of a lack of thought into which companies entrust as enterprise customers. The MFSA has been gradually applying for enrollment as VFA agents under the Virtual Financial Assets Act since the end of November.
The MFSA told the Malta Times that it intended to issue its first licenses in the first quarter. One spokesperson for the Authority stated that the schedule depends on the proper due diligence appraisals such as anti-money-laundering professionalism and combating financing of terrorist activities. The latest Stability Assessment Report of the International Monetary Fund called for prudence regarding virtual asset investments due to their high risk.
The report cautioned that tracking the cryptocurrency industry would necessitate “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”.
The report “strongly encouraged” the officials to progressively apply the laws and regulations, enforce strict guidelines on every license such as cyclic renewal.