Suspicious Transaction Reporting Under MiCA: What VASPs Need to Know

As the European Union implements the Markets in Crypto-Assets (MiCA) Regulation, Virtual Asset Service Providers (VASPs) must adapt their compliance practices to meet a growing set of responsibilities. One of the most crucial is suspicious transaction reporting, which plays a key role in combating money laundering, terrorist financing, tax evasion, and other financial crimes.

In this blog post, we explore the obligations VASPs face under MiCA, the best practices for identifying and reporting suspicious activity, and how MiCA aligns with global standards such as those enforced by the Financial Crimes Enforcement Network (FinCEN) and the Bank Secrecy Act (BSA).

Table of Contents

• Understanding Suspicious Transaction Reporting
• Why Suspicious Transaction Reporting Matters
• Key Indicators of Suspicious Activity
• The SAR Filing and Reporting Process
• Legal Frameworks and MiCA's Alignment
• Technology and Tools for Transaction Monitoring
• Roles of Government Agencies and Law Enforcement
• Staying Compliant Under MiCA
• Best Practices for VASPs
• Emerging Trends and Challenges

Understanding Suspicious Transaction Reporting

Suspicious transaction reporting is the process by which financial institutions and VASPs file reports about activities that may involve illegal activity or unusual transaction behavior. Reporting suspicious activities is crucial for monitoring and combating financial crimes, ensuring that potentially illicit transactions are identified and addressed. This includes cash transactions, cash deposits, and digital asset movements that exceed a certain threshold or defy expected activity patterns.

MiCA mandates that VASPs report suspicious activity to the relevant competent authority in a timely manner. These suspicious activity reports (SARs) or suspicious transaction reports (STRs) must be detailed, accurate, and submitted based on reasonable grounds.

Why Suspicious Transaction Reporting Matters

The requirement to report suspicious transactions is essential for maintaining the integrity of the financial system. Failing to report potential money laundering, identity theft, fraud, or other crimes enables criminal activity to persist undetected, and these activities must be reported to the relevant authorities. VASPs play a central role in ensuring that unusual transactions, large sums, or activity with no reasonable explanation are flagged.

Key Indicators of Suspicious Activity

VASPs must stay vigilant to detect:

• Unusual patterns such as a sudden, substantial increase in transaction volume.

• Transaction activity inconsistent with the customer’s business activities.

• Multiple smaller transactions just under reporting thresholds (known as structuring).

• Single transactions involving large amounts of money with no clear origin. Even a single transaction can raise sufficient suspicion to trigger a Suspicious Activity Report (SAR).

• Rapid movement of funds between certain accounts in a short period.

• Use of negotiable instruments or anonymous crypto wallets.

• Apparent connection to sanctioned entities or jurisdictions.

• Cash purchases or deposits without legitimate reasons.

The SAR Filing and Reporting Process

VASPs must establish internal procedures for:

1. Initial detection of suspicious activity through automated transaction monitoring.

2. Review and escalation by compliance officers.

3. Filing the SAR or STR with the competent authority. It is crucial to notify the board of directors about SAR filings to ensure they are aware of ongoing suspicious activities and can provide oversight.

4. Recordkeeping for at least five years.

These reports must include:

• Full customer information.

• Description of the suspicious activity.

• Details about the transactions (e.g., amounts, dates).

• Reasonable explanation (or lack thereof) for why the activity is considered suspicious.

Legal Frameworks and MiCA's Alignment

MiCA’s approach is consistent with:

• The Bank Secrecy Act in the U.S., which requires financial institutions to file SARs with FinCEN.

• FATF recommendations for anti-money laundering and counter-terrorism financing.

• Regulations in place for financial institutions engaged in cash transactions, funds transfers, and other forms of payments.

MiCA ensures that crypto institutions fall under the same scrutiny as traditional financial institutions. Suspicious activities can be related to potential fraud, money laundering, or other illegal activities.

Technology and Tools for Transaction Monitoring

Effective transaction monitoring systems are essential for preventing money laundering and identifying criminal activity. It is crucial to monitor other transactions such as deposits, withdrawals, and transfers to ensure comprehensive surveillance. VASPs should invest in tools that:

• Detect red flags in real time.

• Apply AI to spot potentially suspicious activity.

• Handle SAR filing workflows securely.

These systems should also manage daily aggregates to detect attempts to circumvent reporting thresholds.

Roles of Government Agencies and Law Enforcement

Law enforcement agencies and government bodies depend on timely, accurate STRs to investigate financial crimes. VASPs must:

• Collaborate with authorities.

• Respond to inquiries.

• Support investigations with relevant data.

Failing to report or filing late can lead to regulatory sanctions, fines, and reputational damage. It is crucial to avoid bad faith in decision-making processes related to filing SARs.

Staying Compliant Under MiCA

To remain compliant, VASPs should:

• Train staff on AML procedures and SAR filing.

• Update internal policies to reflect MiCA’s reporting requirements.

• Perform regular audits of transaction monitoring systems.

• Keep communication lines open with national competent authorities.

• Submit suspicious activity reports without delay when red flags arise.

Best Practices for VASPs

1. Know your customer (KYC) – Conduct thorough onboarding and verify customer identity. Anti-money laundering practices are crucial for businesses to identify red flags and prevent fraudulent activities.

2. Establish a risk-based approach – Tailor monitoring and reporting to customer profiles.

3. Use automated transaction monitoring – Reduce false positives and improve accuracy.

4. Keep records organized – Ensure traceability of reports and supporting data.

5. Review and improve – Periodically update policies and tools based on new risks.

Emerging Trends and Challenges

The crypto-asset market is evolving at a rapid pace, presenting both opportunities and challenges for financial institutions. One of the most pressing trends is the increasing use of crypto-assets for illicit activities, including money laundering and terrorist financing. To combat this, financial institutions must implement robust AML and CFT measures to detect and report suspicious activity effectively.

Emerging technologies such as artificial intelligence and machine learning are becoming invaluable tools in the fight against financial crimes. These technologies can enhance transaction monitoring systems, enabling financial institutions to detect potentially suspicious activity in real-time and report it promptly. However, the increasing use of cash transactions and cash purchases poses a significant challenge, as these can obscure the detection of suspicious activities.

The lack of transparency and accountability in the crypto-asset market further complicates the task of identifying and reporting suspicious transactions. Financial institutions must work closely with law enforcement agencies and government bodies to ensure comprehensive monitoring and reporting. Staying proactive and vigilant is crucial, as is maintaining compliance with MiCA regulations to avoid non-compliance and penalties.

In this dynamic landscape, financial institutions must continuously adapt to emerging trends and challenges. By leveraging advanced technologies, enhancing collaboration with law enforcement, and adhering to regulatory requirements, they can effectively detect and report suspicious activities, thereby safeguarding the financial system from potential threats.

Conclusion

Suspicious transaction reporting is more than a legal obligation—it is a cornerstone of responsible crypto asset management. Under MiCA, Virtual Asset Service Providers (VASPs) must go beyond basic compliance and proactively detect, assess, and report unusual or potentially illicit activity.

MarketGuard empowers VASPs to meet these demands with confidence. By integrating advanced AML frameworks, automated transaction monitoring, and real-time alert systems, MarketGuard enables early detection of red flags while minimizing false positives. With built-in SAR support, audit trails, and customizable risk scoring, our platform ensures VASPs can meet MiCA’s requirements without compromising efficiency or user experience.

In today’s evolving regulatory landscape, staying ahead means more than checking boxes—it requires intelligent systems, continuous monitoring, and unwavering accountability. With MarketGuard, crypto businesses don’t just comply—they lead with trust, transparency, and a robust defense against financial crime.

For more information about how we can help reach out to us. We're here to help and answer any questions you may have.

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References

• European Parliament. (2023). Markets in Crypto-Assets Regulation (MiCA). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114

• Financial Action Task Force (FATF). (2021). Updated Guidance for a Risk-Based Approach to Virtual Assets and VASPs. https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets-2021.html

• Financial Crimes Enforcement Network (FinCEN). (2023). FinCEN Suspicious Activity Reporting (SAR) Requirements. https://www.fincen.gov/report-suspicious-activity

• European Banking Authority (EBA). (2023). Guidelines on money laundering and terrorist financing risk factors. https://www.eba.europa.eu/regulation-and-policy/anti-money-laundering-and-countering-financing-terrorism

• European Commission. (2021). Anti-Money Laundering and Countering the Financing of Terrorism. https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-supervision-and-risk-management/anti-money-laundering-and-countering-financing-terrorism_en

• Basel Committee on Banking Supervision. (2021). Sound Management of Risks Related to Money Laundering and Financing of Terrorism. https://www.bis.org/bcbs/publ/d505.pdf

• Chainalysis. (2024). Crypto Crime Report: Patterns in Illicit Transactions. https://www.chainalysis.com/reports/

• MarketGuard. (2024). AML and Transaction Monitoring Solutions for VASPs. https://marketguard.io/solutions/aml-transaction-monitoring