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National Risk Assessment of Virtual Asset Service Providers

Overview

As part of an ongoing process of assessing the potential risks to the Island’s finance industry, the first risk overview for virtual asset exposure has been completed. It is based on input and feedback from across all relevant competent authorities and from sector representatives within industry.

Jersey has a good track record in the area of virtual assets, or VAs, and was one of the first global jurisdictions to regulate virtual currency exchanges as early as 2016, bringing VAs within Anti-Money Laundering (AML) provisions. But as a rapidly evolving sector it is important to keep up to date with developments, and further legislative changes are scheduled. These changes will help to strengthen our AML/ Countering Financing of Terrorism (CFT) regime whilst providing closer alignment with the Financial Action Task Force (FATF) standards.

In Jersey, the VA sector remains small and the risks therefore limited. Just three entities are registered with the Jersey Financial Services Commission, although there is some indirect exposure from sectors which do business with entities who themselves deal with VAs directly. It is anticipated that this sector will grow, perhaps significantly.

Virtual Assets Money Laundering and Terrorist Financing National Risk Overview

Key findings

The wide range of providers in the global VA space, and their presence across several jurisdictions, can increase risk due to potential gaps in customer and transaction information. Cross-border transactions carry increased risk, and can have a lack of clarity, both over which jurisdiction is ultimately responsible for regulating, licensing and supervising those entities, and which persons are subject to AML/CFT measures.

The Jersey VA and VASP regime is not yet fully aligned to the FATF Standards, although the Proceeds of Crime (Amendment No. 6) (Jersey) Law 202- will bring VASPs fully within scope of AML/CFT provisions and will enable the JFSC to collect relevant data on this sector. This will also enable authorities to undertake a full risk assessment applying the World Bank methodology, in line with previous National Risk Assessments (NRAs).

The jurisdiction’s conservative approach to VAs has served in some ways as a mitigating factor, but has also discouraged authorities and firms from developing a deeper understanding of the sector and the risks it can present. A lack of experience and knowledge means that firms interacting with VAs may be ill-equipped to adequately address the risks. 

Next steps

Government and all other relevant competent authorities need to continue to deepen their understanding of the VA sector and to ensure the legislative and regulatory regime is fit to manage the risks to which the jurisdiction is exposed.

To achieve this, Government is taking positive steps to identify, assess, and understand the ML and TF risks prevalent in the VA sector. It is also looking to identify gaps in its existing frameworks to inform legislative policy and develop a strategy to address those gaps effectively, in line with the FATF Standards.

The VA sector in Jersey remains small, meaning that the risks relating to ML/TF are perceived to be limited in terms of size and impact. To assess the true level of risk, the planned legislative developments will see a more uniform approach in relation to data collection. This will allow for a more in-depth assessment of the risks presented by VAs. 

This sector is rapidly evolving and therefore the potential risks need to be kept under constant review.

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