Recommendation 15 (REC15) of the Financial Action Task Force (“FATF”) in relation to New Technologies requires Virtual Assets Service Providers (“VASPs”) be regulated for Anti‐Money Laundering and Countering the Financing of Terrorism (AML/CFT) purposes, licensed or registered and subject to effective systems for monitoring or supervision.
In June 2019, the FATF adopted an interpretive note to REC 15 to further clarify how the FATF requirements should apply to Virtual Assets (“VAs”) and VASPs, in particular about the application of a risk‐based approach to VA activities or operations and VASPs; supervision or monitoring of VASPs for AML/CFTpurposes; licensing or registration; preventive measures such as Customer due diligence, record keeping and suspicious transaction reporting amongst others; sanctions and other enforcement measures; and international cooperation.
The FATF further adopted changes to REC15 to explicitly clarify that they apply to financial activities involving VAs, while adding two new definitions in the Glossary, VA and VASP. Based on the new definitions, the FATF consolidated existing terms such as crypto currency, digital assets and virtual currency into this new definition of VA and related service providers such as exchanges and certain wallet providers.
The above being said, the Seychelles 4th round Mutual Evaluation Report (“MER”) conducted by the Eastern and Southern African Anti‐Money Laundering Group (“ESAAMLG”), a FATF style regional body, was published in 2018, one year after the conclusion of Seychelles National Risk Assessment (“NRA”) in 2017.
According to the MER, Seychelles was deemed as being non‐compliant (NC) with regards to REC15.
In light of FSA’s on‐going assessment by the ESAAMLG for which the FSA have to report on a bi‐annual basis to show compliance to REC15 and in view of the high level of prevalence of the use of International Business Companies (“IBCs”) undertaking activities in the field of crypto‐currency or other block‐chain technology based services in recent years, the FSA deems it necessary to conduct a risk assessment of VAs and VASPs, as the said activities are currently not being licensed/regulated by the FSA.
While Seychelles could have under normal circumstances, opted to undertake the VA/VASP risk assessment as part of the broader NRA planned for later on in 2022, the Seychelles position vis‐à‐vis its on‐going MER follow up reporting process with the ESAAMLG and the context of the perceived risks associated with VAs and VASPs in relation to legal persons incorporated in Seychelles makes this option unrealistic with regards to timing. It has therefore been agreed on a national strategic level that Seychelles undertakes a VA/VASP specific national risk assessment exercise which will then feed into the overall NRA planned for later onduring the year 2022.
This VA/VASP risk assessment has the primary objective of aiding the FSA and other relevant competent authorities to assess the feasibility, potential benefits and potential draw‐backs of having a VA/VASP regime in the Seychelles where due consideration and focus will be placed on assessing the risks pertaining to such a regime. It is important to note that the exercise will also guide and inform the establishment of a national policy position on the subject matter which is an important first step vis‐à‐vis the development of legislations in line with the established policy position that will allow the Seychelles to meet its obligations in regards to REC 15.
With this being said, the FSA wishes to inform its licensees that it has acquired the services of a qualified and experienced consultant to assist the FSA in conducting a risk assessment of VAs and VASPs that will benefit Seychelles in general. This risk assessment is of high quality in light of FSA’s on‐going assessment by the ESAAMLG for which the FSA has to show compliance to REC 15 of the FATF recommendations. The outcome of the risk assessment for VA and VASP will then feed into a wider NRA planned for 2022. This exercise is a valuable tool for the FSA and its domestic counterparts, to better understand the perceived risks that the country is facing, and to support their own risk assessments and ongoing supervisory activities.
The risk assessment is expected to last for a period of six months and the consultant is expected to be in Seychelles during the third week of February, to kick start the risk assessment process. The FSA believes that the engagement and participation of the private sector through licensees and other stakeholders is essential for the overall success of the VA /VASP risk assessment exercise. In that regard the FSA will be providing additional updates to its licensees and other stakeholders along the course of the risk assessment exercise inclusive of potential capacity building sessions as and when these are organized during the course of the project’s life‐cycle.
Financial Services Authority