Financial sanctions: the pressure is on - part 5

Successful registration of cryptoasset firms in a regulated market Due to the recent financial sanctions, Russian oligarchs are expected to pursue the use of cryptoassets as an alternative means of international payments. However, it has been stated that blockchain is fairly transparent and therefore it would be easier to identify sanctions-busting transactions. Also, regulated jurisdictions, such as the UK, now require cryptoasset firms to be AML registered and compliant. It is evident that moving forward, cryptoasset firms will not be able to operate outside the regulated market. This is the case already for all cryptoasset firms operating in the UK.

In the fifth and final edition of a series of articles, the Lysis Group will highlight the importance of registration for cryptoasset firms wanting to operate in a regulated market.

The practical implications
The practical implications of the above are that financial services and cryptoasset firms are seeing a steep increase in fiat-to-crypto transactions.

Firms that wish to stay on the right side of national law enforcement and regulators will need to ensure that they apply the same AML approach as the rest of the financial services industry and will have to do so in a market where volumes are higher, suspect counterparties are more prevalent and illicit transactions are much more likely.  The same concerns regarding money that flows through countries that have not sanctioned Russia, are also a factor.

The example of Iran is illuminating and very applicable in this regard because although they are heavily sanctioned by the US, Iran has substantial fossil-fuel reserves which they utilise to mine bitcoins. They effectively convert their excess energy into cash by acquiring bitcoins from Iran-based bitcoin miners (powered by fossil-fuel generated electricity) and using the bitcoins to finance international trade. This requires trade counterparts who will accept bitcoin as payment and as such are also vulnerable to volatility in the bitcoin price. However, this might be a route that Russia, as the world’s third-largest country for bitcoin mining, could take. Consequently the US, UK and EU are considering imposing sanctions on Russia’s cryptocurrency market and the transparent nature of blockchain makes this possible.  Switzerland has also taken steps to freeze all Swiss-held cryptoassets owned by Russians and by sanctioned Russian companies.

The Lysis Group has the expertise to assist We have been, and continues to be, successful in assisting clients with complex and contentious regulatory aspects regarding cryptoasset registration. We have significant expertise in the cryptoasset space and can provide substantial insight into this very dynamic market. Gabriel Cozma, Head of Consulting at the Lysis Group adds that, “We can provide specific guidance and practical assistance to ensure that your firm’s preparations for a cryptoasset application meets the regulator’s standards to ensure a successful registration”.

The Lysis Group can assist clients with:
A detailed review of the requirements and expectations.
To review existing processes and supporting documentation and, if necessary, uplift policies and controls  to ensure that all the regulator’s requirements and expectations are met.
The management of the application process from requirements to submission;
and Help manage the responses and inquiries from the regulator during their review of the registration application.

Gabriel highlights the importance of sustainable compliance once the registration process is completed by saying “Following a successful registration, we can offer additional support in a regulated market. This includes the design, development, implementation, and enhancement of an effective and robust financial crime framework which meets the regulator’s requirements and expectations in a sustainable manner”.

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