Virtual Asset

Tokens, such as ARTs, crypto, non-fungible tokens (NFTs), and security tokens, are all examples of virtual assets. In the EU, they’re sometimes referred to as digital assets or digital tokens.

Virtual Asset Service Providers (VASPs) are service providers that are uniquely linked to virtual assets. For example, VASPs include services such as exchanges, crypto ATMs, peer-to-peer (P2P) platforms, custodians, over-the-counter (OTC) desks, and others.

VASP rule, also better known as the Travel Rule, requires Virtual Asset Service Providers (VASPs) to identify and share information about the origin and destination of crypto transactions that exceed a certain threshold. 

This rule was backed by FATF’s intensified efforts to combat money laundering and financial fraud, especially since the rise of virtual assets and new market developments, such as Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), P2P payments, etc. 

FATF has issued various recommendations for businesses and VA users, pointing out the misuse of virtual assets for bad actors looking for money laundering and terrorism financing opportunities. The key risk that regulators share is the fact that the VA market is mainly unregulated (or lacking a unified approach to regulatory rules on a global scale). 

This means that there’s an open door for scams, cyberattacks, and the general loss of value, including an increased level of using crypto, for example, for purchasing other physical assets and laundering illicit funds.

Virtual assets have the biggest benefit of enabling cheaper and more accessible payments, which are an attractive alternative to traditional banking options. Such assets are also a great way to generate profit and monetize investments by buying, selling, or trading VAs. Of course, you need to know the market conditions and speculate the prices to make money off of VAs.

Anti-Money Laundering (AML) compliance aims to decrease the risks associated with the misuse of VAs, such as virtual-to-virtual layering schemes, which are scams designed to obscure illicit funds in a relatively simple and low-cost manner. 

That’s why companies like crypto exchanges are pushed to verify certain transactions above the reporting threshold as an AML measure. So, the AML framework aims to assist such companies in detecting and reporting suspicious transactions effectively.