Virtual Asset Service Providers

November 2019

Virtual assets are vulnerable to being misused by criminals to launder money and fund terrorism as they allow greater levels of anonymity, have global reach making it easier for cross-border payments, and they can be traded easily.

The Department of Internal Affairs (DIA) is the lead Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) contact for virtual asset service providers (VASPs). Financial services provided by VASPs fall within the existing definition of a ‘financial institution’ in the AML/CFT Act 2009.

A virtual asset is a digital representation of value that can be digitally traded or transferred, and can be used for payment or investment purposes. One example is Bitcoin, which is a virtual currency.

In October 2018, the Financial Action Taskforce (FATF) set out global expectations and definitions of virtual assets (Financial Action Taskforce website) on these types of services, expanding them from covering only virtual currencies, such as Bitcoin, to include those that are virtual wallet exchanges, virtual asset brokers,  or offer initial coin offerings. Subsequently, in June 2019, FATF published the Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (PDF, 1.9MB, Financial Acrtion Taskforce website). This guidance sets out new FATF definitions relating to VASPs, which have further expanded the definition of a VASP. The updated definitions cover exchanges (both between VAs and VA-fiat currency), transfers, safekeeping/administration of VAs, and provision of financial services related to VAs. In the New Zealand context, the table below sets out the relevant 5 categories of VASP that are recognised.

VASPs are evolving at a rapid pace, and while they create much innovation, they are creating new opportunities for criminals to launder their proceeds or finance their illegal activities or fund terrorism.

Types of VASPs

VASP	Types of virtual asset activities
Virtual Asset Exchanges	Providing a digital online platform facilitating virtual asset transfers and exchanges.  Exchanges may occur between one or more forms of virtual assets, or between virtual assets and fiat currency. Issuing own virtual assets in order to facilitate virtual asset transfers and exchanges
Virtual Asset Wallet Providers	Providing storage for virtual assets or fiat currency on behalf of others and then facilitating exchanges or transfers between one or more virtual assets, or between virtual assets and fiat currency.
Virtual Asset Broking	Arranging transactions involving virtual assets, or involving virtual assets and fiat currency.
Initial Coin Offering (ICO) Providers	Issuing and selling virtual assets to the public. May involve participating in and providing financial services relating to the ICO.
Providing investment opportunities in virtual assets	Providing an investment vehicle enabling investment in/ purchase of virtual assets (i.e. via a managed investment scheme or a derivatives issuer providing virtual asset options, or via a private equity vehicle that invests in virtual assets).

Responsibilities

VASPs have AML/CFT responsibilities, including: 

• Reporting suspicious activities and certain transactions.
• Verifying the identity of customers in some ­­circumstances.
• Assessing and mitigating money laundering and terrorism financing risks.

In the 2018 Phase 1 Sector Risk Assessment virtual currency exchange platforms were included as part of the broader Payment Provider sector.  You can also read the existing guidance for financial institutions, such as the AML/CFT Risk Assessment Guideline and the AML/CFT Programme Guideline.

If your business is a VASP then we recommend you get in touch with us at AMLCFT@dia.govt.nz  so we can support you in meeting your responsibilities.

For most VASPs we will be your AML/CFT supervisor. In a few cases, the Financial Markets Authority (FMA) may be your supervisor depending on the services you provide. VASPs should contact DIA as the lead AML/CFT contact.