Risk Disclosure Statement
We have been requested by the Virtual Assets Regulatory Authority to publish a detailed description of all material risks associated with Virtual Assets, including the following:
Virtual Assets –
· May lose their value in part or in full and are subject to extreme volatility at times; · may not always be transferable and some transfers may be irreversible; · may not be liquid;
· Some transactions are not private and may be recorded on public Distributed Ledger Technology (DLTs); and
· May at no fault of our own be subject to fraud, manipulation, theft, including through hacks and other targeted schemes and may not benefit from legal protections.
This Risk Disclosure Statements outlines a non-exhaustive list of material risks that are associated with the Virtual Assets and WadzPay’s business:
(i) Financial Risk
Financial risk refers to not having adequate capital or liquidity to compete and carry out business. It also refers to the inability to pay to debtors and creditors.
(ii) Market Risk
Market risks refer to the possibility of financial losses arising from changes in the value of virtual assets. These changes could be caused by various factors such as economic events, political events and other factors that affect the markets.
(iii) Business Strategy Risk
Business strategy risk is the risk that a company’s strategic decisions or plans may not achieve the desired outcome or may result in unexpected negative consequences. It is the risk of failure to execute a company’s strategy or the possibility that the strategy may become obsolete due to changes in the business environment.
(iv) Product Risk
New products and business initiatives as well as major changes to existing products may cause certain risks to companies. Having multiple products with different risk characteristics assist to mitigate risks.
(v) Customer Risk
This risk refers to a company being adversely impacted by difficulties faced by customers. For example, a customer may encounter financial difficulties and the Company’s overall risk also increases if customer base is largely from high-risk categories such as high risk countries, engaged in high risk products or services and if they are politically exposed persons.
(vi) Employee Fraud and Retention Risk
Employee fraud risk and employee retention risks are two main risks faced by companies. Some fraud risks pertain to operational matters and others more general in nature including risk of making fraudulent statement to counterparties, customers, service providers and the Authority. Employee retention risk pertains to key people of the organisation leaving and not having adequate replacements in the organisation. It also refers to risk of hiring non competent employees to carry out significant duties and functions in the organisation.
(vii) Operational Risk
Operational risk refers to the risk of loss resulting from inadequate of failed internal processes, systems, human errors, or external events. It is the risk of disrupting to a company’s daily operations, leading to financial or reputational losses.
Operational risks can arise from a wide range of factors, including:
• Human error or negligence;
• System failures, such as technology breakdowns, hardware or software malfunctions, or cyber-attacks;
• External events, such as natural disasters;
• Legal or compliance failures, such as violation of laws or regulations;
(viii) Technology Risk
Technology risks refers to failure of technology and information systems to adequately support the business. It also refers to unauthorised access and attacks to systems which causes unwarranted risks such as customer data leak and business confidential information leak which leads to reputation damage to the Company.
System failures can lead to downtime, lack of communication and loss of critical information.
(ix) Business Continuity Risk
Business continuity risk refers to the risk of disruption to a company's operations due to unexpected events, such as natural disasters, cyber-attacks, or other incidents that can cause a significant impact on the business. Business continuity risk can lead to a disruption of critical business processes, systems, and infrastructure, resulting in financial losses, reputational damage, and other negative consequences.
(x) Compliance and Regulation Risk
Compliance and regulatory requirements are potential risk factors that company to assess to either be deemed to have violated law or regulations. All licensed companies are obligated to adhere to regulation obligations in order to maintain its license and ensure it is adhering to fiduciary duties to its customers.
Failure to comply with regulations and compliance may result in penalties and fines, removal of key officers and in serious enough breach it may result in imprisonment, ban from doing regulated activities and also cessation of licence.
(xi) Outsourcing Risk
Outsourcing risk can hurt a company in many ways—from failed controls that cause a vendor to violate laws or regulations to poor management oversight. In fact, outsourcing risk is the most encompassing vendor management risk.
An effective governance approach must have a clear insight in the performance of a supplier and the risks associated with the service being delivered. It makes sure the controls commensurate with the level of value at risk presented by the outsourcing engagement. Any lack of controls will leave the organisation exposed to value loss. An excess of controls on the other hand will result in unnecessary efforts and costs.
(xii) Third-Party Risk
The use of certain third-party services by the Company may not always constitute outsourcing. However, as many of these services are provisioned or delivered using IT, or may involve confidential or sensitive customer information being stored or processed electronically by the third party, the Company’s operations and its customers may be adversely impacted if there is a system failure or security breach at the third party.
the Company will assess and manage its exposure to technology risks that may affect the confidentiality, integrity and availability of the IT systems and data at the third party before entering into a contractual agreement or partnership.
On an ongoing basis, the Company should ensure the third party employs a high standard of care and diligence in protecting data confidentiality and integrity as well as ensuring system resilience.
(xiii) Conflict of Interest Risk
Conflict of interest may occur when a personal interest or relationship is placed before the Company’s interest and customers’ interest. the Company may from time to time find itself in a position where conflict of interest may arise. If the conflicts are not identified and reconciled, it can lead to loss in revenue, reputational damage, legal or Authority’s action against the Company.
This may arise when:
• Interest of the Company conflicts with those of customer.
• Interest of one customer of the Company conflict with those of another customer of the Company.
• One subsidiary has obtained confidential information relating to an existing customer which can benefit/ be value of another group entity of the Company Group.
(xiv) Financial Crime Risks
AML/CFT measurements are the core of the Company’s financial crime mitigation strategy.
Sound CDD policies and procedures will reduce the risk of the Company being used as an intermediary for money laundering or other illegal activities. Therefore, CDD policies and procedures will be reviewed and updated periodically.
Besides individual clients, ML/TF risks are also associated with virtual assets, virtual assets related products and services, and technologies associated with VA Activities.
(xv) Consumer Protection Risks
Regulators are increasingly concerned about a range of consumer protection issues as virtual assets industry continues to grow and evolve. Some of the key areas are:
• Communication with clients and marketing campaigns. There are restrictions and regulatory requirements on marketing activities in different regions that the Company needs to be aware and action on accordingly.
• Legal risks. Those are risks arising from the contractual agreements with clients. • Disclosure and Reporting. Risks arising from the nature of terms of business, periodic statements and other documentation provided to clients.
• Client assets. Risks arising from the Company holding or controlling of client money or assets.
(xvi) Virtual Assets Related Risks
Virtual Asserts are a young and emerging market—with many projects still in the stage of explosive price discovery. This in turn results in an unusually high price volatility that you wouldn't expect to see with other asset types.
Private keys function as a verification mechanism embedded in the crypto wallet, allowing one to sign and send transactions from his/her wallet balance. A secure wallet and an appropriate backup method, and avoid storing any private key backups on an internet-connected device are essential to safeguard one’s virtual assets.
Virtual assets holders and users are also often targeted by scammers and tricksters. It is especially important to be wary of fake websites and phishing emails that pretend to be from reputable sources—no reputable crypto asset issuer or service provider will ask for your private keys or passwords.