Asset servicers face mounting virtual asset crime
27 June 2025 rance
Image: Song_about_summer/adobe.stock.com
The Financial Action Task Force (FATF) has warned that regulatory gaps in virtual asset oversight are creating global financial system vulnerabilities, with illicit on-chain activity related to fraud and scams reaching approximately US$51 billion in 2024.
In its sixth targeted update on anti-money laundering and counter-terrorist financing measures for virtual assets and virtual asset service providers, FATF highlighted how regulatory failures in one jurisdiction can have global consequences for asset servicers and financial institutions.
The report reveals that most on-chain illicit activity now involves stablecoins, with usage by criminals including Democratic People's Republic of Korea actors, terrorist financiers and drug traffickers continuing to increase since the previous 2024 update. This trend poses particular risks for asset servicers handling digital asset custody and settlement operations.
FATF's assessment of jurisdictions' compliance with Recommendation 15 and its Interpretative Note, updated in 2019 to apply anti-money laundering measures to virtual assets, found progress in developing regulation but significant implementation gaps remain. The organisation noted particular challenges in licensing and registration, with jurisdictions struggling to identify natural or legal persons conducting virtual asset service provider activities.
The scale of criminal exploitation was highlighted by South Korea's theft of US$1.46 billion from virtual asset service provider ByBit this year, the largest single virtual asset theft in history. Only 3.8 per cent of the stolen funds have been recovered, underscoring asset recovery challenges that could impact institutional investors and their service providers.
"Regulatory failures in one jurisdiction can have global consequences," FATF stated, emphasising the borderless nature of virtual assets and their systemic implications for traditional financial services.
Almost 100 jurisdictions have passed, or are in the process of passing, legislation implementing the Travel Rule, which ensures transparency around cross-border payments. To support implementation, FATF also published Best Practices on Travel Rule Supervision, providing examples for supervisory frameworks.
The report includes an updated table of steps taken by jurisdictions with materially important virtual asset service provider activity. These jurisdictions constitute approximately 98 per cent of the global virtual asset market, making their compliance critical for reducing overall risks.
Jurisdictions continue to face difficulties mitigating risks from offshore virtual asset service providers, creating potential blind spots for asset servicers conducting due diligence on counterparties and custodial arrangements.
FATF highlighted findings from significant cases including the UK's Operation Destabilise, which underscored the importance of international cooperation and the ability to freeze and seize assets to disrupt criminal networks.
In its sixth targeted update on anti-money laundering and counter-terrorist financing measures for virtual assets and virtual asset service providers, FATF highlighted how regulatory failures in one jurisdiction can have global consequences for asset servicers and financial institutions.
The report reveals that most on-chain illicit activity now involves stablecoins, with usage by criminals including Democratic People's Republic of Korea actors, terrorist financiers and drug traffickers continuing to increase since the previous 2024 update. This trend poses particular risks for asset servicers handling digital asset custody and settlement operations.
FATF's assessment of jurisdictions' compliance with Recommendation 15 and its Interpretative Note, updated in 2019 to apply anti-money laundering measures to virtual assets, found progress in developing regulation but significant implementation gaps remain. The organisation noted particular challenges in licensing and registration, with jurisdictions struggling to identify natural or legal persons conducting virtual asset service provider activities.
The scale of criminal exploitation was highlighted by South Korea's theft of US$1.46 billion from virtual asset service provider ByBit this year, the largest single virtual asset theft in history. Only 3.8 per cent of the stolen funds have been recovered, underscoring asset recovery challenges that could impact institutional investors and their service providers.
"Regulatory failures in one jurisdiction can have global consequences," FATF stated, emphasising the borderless nature of virtual assets and their systemic implications for traditional financial services.
Almost 100 jurisdictions have passed, or are in the process of passing, legislation implementing the Travel Rule, which ensures transparency around cross-border payments. To support implementation, FATF also published Best Practices on Travel Rule Supervision, providing examples for supervisory frameworks.
The report includes an updated table of steps taken by jurisdictions with materially important virtual asset service provider activity. These jurisdictions constitute approximately 98 per cent of the global virtual asset market, making their compliance critical for reducing overall risks.
Jurisdictions continue to face difficulties mitigating risks from offshore virtual asset service providers, creating potential blind spots for asset servicers conducting due diligence on counterparties and custodial arrangements.
FATF highlighted findings from significant cases including the UK's Operation Destabilise, which underscored the importance of international cooperation and the ability to freeze and seize assets to disrupt criminal networks.
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