Virtual Asset Service Providers

April 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 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.  As announced in February 2019, FATF is currently setting out more detailed requirements for VASPs and their AML/CFT supervisors. This expanded definition and the detailed guidance will help prevent money laundering and financing of terrorism and are due to be finalised in June 2019.

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

Virtual Asset Exchanges

  • Issuing virtual assets such as virtual currency/digital tokens to facilitate virtual asset trading  or
  • Providing a digital online platform facilitating virtual asset trading.  Trading may occur between virtual assets or between virtual asset and currency.

Virtual Asset Wallet Providers

  • Providing storage for virtual assets or fiat currency on behalf of others and then facilitating exchanges between virtual assets or fiat currency.

Virtual Asset Broking

  • Arranging transactions involving virtual assets.

Initial Coin Offering (ICO) Providers

  • Issuing and selling virtual assets/digital tokens to the public (where tokens are not “financial products” under Financial Markets Conduct Act).

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.