The European Banking Authority (EBA) has extended its guidelines on money laundering (ML) and terrorist financing (TF) risk factors to crypto-asset service providers (CASPs). This initiative is significant in the EU's ongoing battle against illicit financial activities. As crypto assets become increasingly susceptible to misuse for criminal purposes, the EBA's guidelines aim to equip CASPs with the knowledge and tools to identify and effectively mitigate these risks.

The EBA's guidelines shed light on the risks CASPs face, emphasizing factors such as the rapid crypto-asset transfers and features that conceal user identities. These risks necessitate a comprehensive understanding, prompting the EBA to provide a list of factors indicating exposure levels to ML and TF risks.

CASPs have been urged to delve into their customer base, product offerings, delivery channels, and geographical locations to pinpoint vulnerabilities. To counteract these risks, the CASPs are encouraged by the EBA to adjust their mitigating measures, with a special emphasis on the use of blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Read this Term analytics tools.

Guidelines for Financial and Crypto Institutions

The guidelines provide a roadmap for CASPs to tailor their strategies based on the identified risk factors, creating a robust defense against potential money laundering Money Laundering Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Read this Term and terrorism financing activities.

We have extended our Guidelines on money laundering (ML) and terrorist financing (TF) risk factors to #crypto-asset service providers (CASPs).

🏹Aim: help CASPs identify these risks by providing a non-exhaustive list of different factorshttps://t.co/YCHJdOGvj2 pic.twitter.com/jTeDNIhX9f

— EU Banking Authority - EBA 🇪🇺 (@EBA_News) January 16, 2024

Due to the interconnected nature of the financial sector, the guidelines extend to other credit and financial institutions that engage with CASPs or have exposure to crypto assets. The regulator explained that the risk escalates when institutions form business relationships with non-authorized crypto-asset service providers. However, the EBA's comprehensive approach ensures a cohesive strategy across the financial landscape.

EU Combats Financial Crime

The guidelines for the ML and TF risk factors align CASPs across the EU, harmonizing their approach to implementing the risk-based strategy for anti-money laundering and countering the financing of terrorism. According to the EBA, this harmonization is important for fostering a united front against financial crime.

Last year, the EBA established comprehensive rules to regulate the stablecoin market. These regulations aim to establish a robust framework, requiring stablecoin issuers to uphold minimum capital and liquidity standards.

According to the watchdog, the primary objective is safeguarding investors by ensuring that stablecoin-backed currencies maintain sufficient reserves, thereby mitigating potential crises. This strategic move is intended to provide a robust foundation for the stablecoin industry, reducing risks and enhancing investor confidence.