
Virtual Assets and VASPs
Managing Risks and Unlocking Opportunities
Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs) are transforming financial systems globally, offering speed, transparency, and decentralization. However, their rise has introduced challenges such as money laundering (ML), terrorist financing (TF), and regulatory arbitrage. By January 2025, the global cryptocurrency market had grown to over $3.5 trillion, with India becoming one of the top crypto-adopting countries, driven by remittances and retail investments.
Understanding Virtual Assets and VASPs
What Are Virtual Assets (VAs)?
Virtual Assets (VAs) are digitally represented assets that can be traded, transferred, or used as payment.

Who Are Virtual Asset Service Providers (VASPs)?
VASPs are entities facilitating virtual asset-related services, such as:
- Exchanges: Platforms enabling crypto trading (e.g., Binance, CoinDCX).
- Custodians: Entities offering secure storage for digital assets.
- Wallet Providers: Apps and services for storing and transferring cryptocurrencies.
- DeFi Platforms: Decentralized financial systems enabling transactions without intermediaries.
Opportunities and Risks of VAs and VASPs
Opportunities
- Financial Inclusion: Cryptocurrencies provide banking access to underbanked populations, particularly in rural areas.
- Remittance Growth: Stablecoins facilitate faster and cheaper cross-border payments, which account for 15% of India’s crypto adoption.
- Tokenization: Fractional ownership of real estate and other assets via tokenization opens new investment opportunities.
- Blockchain Innovation: Platforms like Ethereum foster decentralized applications (dApps) beyond finance.
Risks
- Money Laundering and Terrorist Financing:
○ In 2024, over $23 billion in illicit transactions occurred globally via cryptocurrencies.
○ Criminals use mixers, tumblers, and DeFi protocols to obscure fund flows. - Fraud and Market Manipulation: In India, the GainBitcoin scam led to ₹20,000 crore in investor losses, exploiting fake crypto investment promises.
- Regulatory Arbitrage: Differences in regulations across jurisdictions allow bad actors to exploit gaps.
- Sanctions Evasion: Rogue entities and nations leverage cryptocurrencies to bypass international sanctions.
Global and Indian Regulatory Framework
FATF Recommendations
The Financial Action Task Force (FATF) sets the global standard for VA and VASP regulation:
Recommendation 15: Requires VASPs to implement robust AML/CFT measures.
Travel Rule: Mandates sharing sender and receiver information for transactions exceeding $1,000.
Risk-Based Approach: Jurisdictions must evaluate and mitigate VA-related risks.
Technologies and Tools to Combat VA-Related Crimes
Blockchain Analytics: Tools like Chainalysis, CipherTrace, and Elliptic trace suspicious transactions and identify patterns linked to illicit activity.
AI-Powered Compliance: Machine learning algorithms monitor transaction histories, identifying anomalies indicative of fraud or ML.
DeFi Risk Monitoring: Tools like TRM Labs analyze decentralized platforms for compliance violations.
Real-Time Sanctions Screening: Integrates global sanctions lists with crypto monitoring tools to prevent funds from entering prohibited networks.
Recent Trends
Privacy Coins and Anonymity : Assets like Monero and Zcash are gaining traction, complicating regulatory oversight.
DeFi Challenges : Decentralized exchanges account for 60% of global crypto transactions, raising concerns over AML compliance.
Increased Stablecoin Adoption : Stablecoins accounted for 40% of crypto transactions in India, driven by remittances and e-commerce payments.
CBDC Growth : Over 100 countries are piloting or implementing central bank digital currencies.
Globally, tools like blockchain analytics, AI compliance platforms, and FATF’s Travel Rule are proving indispensable in combating financial crimes. However, the future will depend on harmonized regulations, technological advancements, and proactive collaboration between regulators and industry stakeholders.
Additional Resources:
- FATF Recommendations: https://www.fatf-gafi.org
- India’s Crypto Guidelines: https://egazette.nic.in
- Chainalysis Reports: https://blog.chainalysis.com
- PMLA Guidelines: https://www.rbi.org.in
- FATF Recommendations: https://www.fatf-gafi.org/recommendations
- Chainalysis, 2025