The Maltese Financial Intelligence Analysis Unit (“FIAU”) has drawn the attention of subject persons to a newly published report by the Financial Action Task Force (“FATF”), entitled “Targeted Report on Stablecoins and Unhosted Wallets – Peer-to-Peer Transactions”. The report examines emerging illicit finance risks linked to the misuse of stablecoins, particularly through peer-to-peer (“P2P”) transactions involving unhosted wallets.
According to the FATF, while stablecoins are designed to provide stability, liquidity and interoperability for legitimate users, these same features can be exploited by criminals. In particular, the report highlights how cybercriminal groups and other illicit actors may utilise stablecoins to launder proceeds from cybercrime and finance proliferation activities.
A key vulnerability identified is the use of unhosted wallets in P2P transactions. Because such transactions occur directly between individuals or entities without the involvement of a regulated intermediary, such as a Virtual Asset Service Provider (“VASP”) or a financial institution, they may fall outside the scope of certain regulatory controls. The report also notes challenges related to cross-chain transactions, which can obscure transaction trails and complicate monitoring efforts.
In response to these risks, the FATF encourages jurisdictions to ensure the full implementation of Recommendation 15 (“R.15”) of the FATF Standards. This would subject stablecoin issuers, intermediary VASPs, financial institutions and other participants within stablecoin arrangements to clear anti-money laundering and counter-terrorist financing (“AML/CFT”) obligations.
The report also outlines a number of good practices aimed at mitigating risks, including:
- Requiring stablecoin issuers to implement risk-based governance and technical controls, such as the ability to freeze, burn, or withdraw tokens and to conduct customer due diligence at the redemption stage;
- Enhancing the technical expertise of supervisory and law enforcement authorities, particularly in relation to cross-chain transactions and blockchain analytics;
- Ensuring competent authorities have the legal frameworks and tools necessary for effective domestic and international cooperation; and
- Strengthening public-private partnerships to support information sharing and risk mitigation.
Additionally, the report includes case studies illustrating how blockchain analytics and emerging technologies have been used to detect and disrupt the misuse of stablecoins.
The full FATF report can be accessed here.
