Why Virtual Asset Service Providers are exposed to financial crime risk
Virtual Asset Service Providers (VASPs) are attractive targets for organised criminal networks because they facilitate rapid, cross-border and often pseudonymous value transfers across a diverse ecosystem of exchanges, wallets and tokenised instruments, creating opportunities to place, layer and integrate illicit proceeds through complex on-chain transactions, mixers, peer-to-peer trades and opaque intermediary services.
Given the speed, technical complexity and evolving regulatory landscape of virtual assets, it is essential that VASPs implement a robust, enterprise-wide money laundering, terrorism and proliferation financing risk assessment framework that identifies unique crypto-specific threats, assesses exposure across products and channels and tests the design and operational effectiveness of mitigating controls.
By doing so in a manner proportional to their size, business model and technological complexity, VASPs can strengthen compliance, protect customers, meet regulator expectations, and sustain market trust as the digital-asset ecosystem matures.
For Money Laundering Reporting Officers (MLROs) and senior compliance leaders at VASPs, the task isn’t simply to satisfy minimum requirements – it’s to demonstrate a deep, defensible understanding of risk that stands up to regulatory review, supports business decision-making and drives proportionate control execution.
Arctic Intelligence’s ML/TF/PF Risk and Control Assessment Solution has been developed specifically for VASPs. It supports them in meeting regulatory expectations, providing a structured, evidence-based, regulator-ready framework that empowers teams to identify, assess and govern financial crime risk across every line of business.
Why Virtual Asset Service Providers are targeted by organised criminal networks
Virtual Asset Service Providers are inherently exposed to financial crime risk for several reasons:
- Central Role in Digital Asset Economies: VASPs facilitate the exchange, custody, transfer and conversion of virtual assets and fiat currency, making them primary gateways through which illicit funds can be placed, layered and integrated into digital asset ecosystems.
- High-Velocity, Pseudonymous Fund Flows: Blockchain-based transfers enable rapid, irreversible and often pseudonymous movement of value, creating transaction velocity and opacity that can obscure illicit activity without advanced blockchain analytics and risk-sensitive monitoring.
- Cross-Border and Borderless Transaction Capability: Virtual asset platforms operate across jurisdictions simultaneously, exposing VASPs to high-risk geographies, sanctions regimes and proliferation financing corridors.
- Use of Mixing Services, Privacy Coins and DeFi Integrations: Interaction with tumblers, privacy-enhancing assets and decentralised finance protocols can be exploited to obfuscate transaction trails and layer illicit funds.
- Third-Party Wallets, Bridges and Payment Integrations: External wallets, payment processors, cross-chain bridges and embedded crypto services create additional entry points for illicit funds and fragmented control environments.
- High-Value Event-Driven Transactions: Token sales, large OTC trades, staking withdrawals and liquidation events involve infrequent but high-value transactions that can be exploited for placement and extraction of illicit funds.
- Digital Onboarding and Remote Access Models: Fully digital onboarding models increase exposure to synthetic identity fraud, impersonation and mule account networks if not governed through robust AML/CTF and travel rule controls.
Taken together, these features make Virtual Asset Service Providers a primary target for organised criminal networks and place enterprise-wide, evidence-based ML/TF/PF risk assessment at the centre of regulatory expectations.
Introducing Arctic Intelligence’s ML/TF/PF Risk and Control Module for Virtual Asset Service Providers
Arctic Intelligence’s Virtual Asset Service Providers Risk and Control Module provides a comprehensive and configurable foundation for conducting robust, enterprise-wide ML/TF/PF risk assessments tailored to this sector.
This module enables Virtual Asset Service Providers to:
- Identify and Prioritise ML/TF/PF Risks: Using VASP-specific risk taxonomies aligned to FATF and supervisory expectations, the module guides providers through identifying the highest-impact risk areas across customer and wallet profiles, virtual asset products and services, exchange and brokerage channels, on-chain and off-chain transaction flows, custody and staking arrangements, and geographic and jurisdictional exposures.
- Assess Controls and Operational Effectiveness: Moving beyond static compliance checklists, the solution maps controls to real digital asset risk drivers and enables testing of both design and operational effectiveness allowing VASPs to demonstrate, with evidence, that controls are operating as intended.
- Calculate Residual Risk Transparently: Residual risk reflects a fund’s true financial crime exposure. Arctic’s module aggregates inherent risk indicators with control performance data to produce defensible residual risk ratings that are directly aligned to risk appetite, escalation thresholds and governance frameworks.
- Produce Audit-Ready Documentation: Built-in audit trails, version history, structured review workflows and aggregated reporting provide regulators, internal audit and trustees with transparent, evidence-based documentation explaining how financial crime risk conclusions were reached and governed.
This solution embeds industry specific typologies, regulatory best practice and global risk methodologies into a scalable, configurable risk and control platform that supports consistent application across business lines, geographies and legal entities.
The built-in audit trail, review logs and Board-ready reporting enable stronger governance oversight while making complex risk outcomes digestible for executives and boards.
Who does this module apply to?
The money laundering, terrorism and proliferation financing risk and control module contains a library of risks, controls and control tests designed specifically for different types of Virtual Asset Service Providers:
| Blockchain Asset Platforms | Digital Asset Exchanges |
| Crypto and Fiat Exchanges | Digital Currency Providers |
| Crypto Asset Managers | Digital Token Providers |
| Crypto Brokers | NFT Marketplaces |
| Crypto Custodians | Virtual Asset Custodial Services |
| Crypto OTC Desks | Virtual Asset Service Providers |
| Crypto Trading Platforms | Virtual Currency Exchanges |
| Decentralised Finance Platforms | Virtual Wallet Providers |
| Crypto Payment Platforms | Web3 Financial Services |
What does this module contain?
A. Enterprise-wide ML/TF/PF risk assessment, covering the following risk groups:
- Environmental Risk – covering exposure to internal and external risk indicators.
- Customer Risk – covering customer base profile, customer location risk, legal form risk, industry / occupation risk, PEP risk and customer activity risk.
- Product and Services Risk – covering the services provided by Virtual Asset Service Providers that are subject to AML/CTF laws and the inherent risk characteristics of each of these.
- Channel Risk – covering face-to-face and non-face-to-face customer onboarding and transaction channels.
- Transaction Risk – covering higher risk transaction types.
- Country Risk – covering higher risk country risk exposures based on the residency, nationality or citizenship (Individuals) and country of registration, incorporation, domicile or operations (Entities).
These modules also include a comprehensive library of suggested controls and control tests to support design and operational effectiveness testing.
Virtual Asset Service Providers can deploy the content module out-of-the-box or tailor it to their methodology, eliminating the need to start from scratch while maintaining full ownership of their risk model. It also allows firms to import their own risk indicators and controls or enhance the expert-built libraries to suit their bespoke risk methodology and regulatory environment.
B. Product and Services ML/TF/PF risk assessment module, covering different products and services, with inherent ML/TF/PF risk attributes of each over the following risk groups:
- Cross-Border and Intermediary Services – covering Cross-Border and Intermediary Services, Cross Jurisdictional Value Transfer Services and Message Passing in a Value Transfer Chain.
- Custodial Services – covering Custodial Services, Custodial of Digital Asset Services and Custody of Private Key Services.
- Digital Currency Exchange Services – covering Brokerage and Arrangement Services, Fiat to Virtual to Asset Exchange Services and Virtual Asset to Virtual Asset Exchange Services.
- Issuance and Fundraising Services – covering Crowdfunding and Fundraising Tokens, Initial Coin Offerings (ICOs) and Token Sales, Issuance and Fundraising Services, Token Structuring and Advisory.
- Transfer and Payment Services – covering Accepting Virtual Assets as Payment, Payment Services, Transfer and Payment Services and Transfer of Virtual Assets.
- Wallet Services – covering Hosted Wallet Services (Custodial Wallets), Unhosted Wallet Interfaces and Wallet Services.
C. Channel ML/TF/PF risk assessment module, covering over 30 different inherent ML/TF/PF risk attributes of each over the following risk groups:
- Face-to-Face Channels – covering Internal Physical Channels; Relationship Managed Physical Channels and External Physical Channels.
- Non-Face-to-Face Channels – covering Internal Remote Assisted Channels; Internal Manual Channels; Internal Digital Self-Service Channels; Internal Programmatic / Embedded Access Channels; External Interbank and Payment Infrastructure Channels and External Digital Channels.
- Face-to-Face or Non-Face-to-Face Channels – External Partner Intermediary Channels.
- Customer Onboarding Channels (General) – Channel type; onboarding through face-to-face channels and non-face-to-face channels and customer onboarding through intermediaries.
- Transaction and Delivery Channels – Value of transactions by delivery channel type.
- General Channel Risks – Higher channel risk indicators.
Get started with Arctic Intelligence
Whether you are establishing your first enterprise-wide ML/TF/PF risk assessment or upgrading a legacy spreadsheet-based program, Arctic Intelligence’s Virtual Asset Service Providers Risk and Control Module is a scalable, defendable and configurable solution that meets the needs of modern compliance teams.
Book a demo or contact us to explore how our platform can help your business strengthen compliance, mitigate financial crime risk and build a risk program that stands up to regulatory scrutiny.
Or visit our website to learn more.
