The Financial Intelligence Agency (FIA) has flagged at least 511 suspicious transactions by virtual asset service providers within three months, according to the latest issue of the Financial Stability Report (FSR) released this week.
The report was prepared by the Bank of Botswana in collaboration with the Ministry of Finance, the Non-Bank Financial Institutions Regulatory Authority, FIA, the Deposit Insurance Scheme of Botswana and the Botswana Stock Exchange Limited.
According to the report, “There is a notable increase in misconduct risks in the virtual asset market, where funds are solicited from the public by unlicensed entities and individuals, with a promise to invest in virtual assets.”
The report says during the period October 2023 to March 2024, a total of 511 suspicious transactions were reported to the Financial Intelligence Agency (FIA).
“Most of these reports related to illegal deposit taking, followed by fraud cases. FIA was able to resolve these cases and avert loss of funds by members of the public,” the report says.
Despite the alleged misconduct, the report says “The domestic virtual assets market is, however, still developing and relatively unsophisticated, thereby posing limited risks to financial stability.” It notes that misconduct issues in the banking sector are minimal and unlikely to pose significant risks to financial stability.
The report says cyber risks arising from financial technology (Fintech) are also considered minimal but as Botswana advances on innovation, this risk could magnify and pose a threat to the smooth functioning of the financial system.
“Cyber risks are among the top five national security risks that could emanate from the financial sector in Botswana. For this reason, appropriate laws, regulations, frameworks, and surveillance are crucial to the early detection and prevention of such threats,” the report says.
Accordingly, the report says, a National Fintech Working Group was launched on 30 January 2024, to provide strategic direction on Fintech matters.
The report shows that the working group was specifically established to develop an inclusive National Fintech Strategy and a Fintech Analytical Assessment Framework that facilitates the development of the financial services sector consistent with national priorities on payment systems.
The group comprises key national stakeholders including government, regulatory authorities, financial services infrastructure providers and other relevant stakeholders.
Touching on money laundering and terrorism financing, the report says, the evolution of digital platforms and digital payment instruments that promote the anonymity of transactions present an opportunity for money laundering in the financial sector.
“With the complexity of recent financial technology developments, illicit funds can be transmitted globally with relatively low detection risks, particularly through intricate financial investment vehicles and other cyber-enabled crimes,” the report says.
Citing the 2023 national risk assessment for money laundering and terrorist financing, the report says the national vulnerability and threat to money laundering were rated medium and medium-high, respectively. “This presents a likelihood for the country to be used as a conduit to move funds or be used to raise funds for terrorism activities. Therefore, money laundering remains a national security risk,” the report says.
With regard to cybercrime and financial fraud, the report says with the increasing digitisation of financial services, including online banking, mobile payments and digital currencies, cybercrimes pose a significant threat to the financial sector and the economy. “Malicious actors target institutions and individuals to steal sensitive information, conduct fraudulent transactions, and disrupt financial systems, leading to financial losses and undermining consumer confidence,” says the report.
On another related issue, the report says physical security threats such as cash heists and Automated Teller Machine (ATM) bombings have increased in Botswana. It says armed robbers organise cash-in-transit heists, overpowering security company guards and making off with large sums of money. The report says “In the past, these incidences have led to significant losses of central bank currency, as well as losses of lives.”
“Financial institutions and businesses also incur costs to improve their security. Generally, these crimes do not only strip businesses off their hard-earned cash, but they also threaten confidence and security in the financial sector,” says the report.
Other prevalent risks to domestic financial stability include climate-related risks, the report says. It says the occurrence of persistently dry conditions and a rise in global temperatures are threatening food security and have the potential to indirectly affect domestic financial stability.
Severely dry weather conditions have the potential to drive food prices up, reduce household income and in some cases result in defaults on loans. “Climate physical risks may amplify credit losses due to potential damage and/or loss of value to property and thus, deplete balance sheets of insurance companies which insure commercial real estate and mortgaged properties,” it says.
The report points out that the 2024 budget Speech indicates that agriculture and tourism sectors are most vulnerable to climate change. “As a result, the budget allocated P1.37 billion to fund climate mitigation activities, while legislation review and integration of climate change requirements into public finance management strategies are ongoing to foster sustainable and green development,” it says.
