New forms of digital money
The COVID-19 pandemic has accelerated digital transformation and adoption, generating momentum for digital currencies and other payment innovations.
The global banking sector is increasingly moving towards a “marketplace without boundaries”, and digital currencies – as a potential alternative method of payment – have been a hot topic over the past year, especially in a context where cash transactions have been dwindling fast due to the pandemic.
Digital currency refers to any currency, money or money-like asset that is primarily managed, stored or exchanged over the internet, and which functions as a medium of exchange, units of account or stores of value. However, unlike ordinary currencies, digital currencies are not legal tender, and globally, law enforcement officials, regulators and courts are grappling with how virtual currencies fit into AML and CFT regimes designed principally for traditional financial institutions.
Worldwide, there have also been renewed conversations about the regulation of digital currencies. Recent media reports on financial crime involving digital currencies highlighted some of the emerging risks, and the debate about Central Bank Digital Currencies (CBDCs) and the role of official institutions are informed by the need to safeguard financial systems, while supporting the innovation. And though central banks have been researching this topic for some time, news of certain central banks potentially issuing their own CBDCs have brought digital currencies to the forefront of the related policy debate.
While digital currencies have the potential to enhance efficiencies with international payments, foster financial inclusion and overall enhance economic efficiency, they also hold features that, if not carefully addressed, present serious money laundering and financial crime risks.
In all this, the need for international coordination to address anti-money laundering (AML) and counter financing of terrorism (CFT) risks cannot be overstated. Absa has collaborated with the World Economic Forum (WEF) Global Futures Council and Financial Action Task Force (FATF) to host a virtual dialogue titled “Digital Currencies and Anti-money Laundering Risks”.
Absa is committed to joining forces with individuals, consultative groups, global NGOs and industry bodies such as the FATF to create platforms such as this to better understand and address the risks associated digital currencies.