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Know Your Crypto: How KYC and AML are helping cryptocurrencies go mainstream

Cryptocurrencies have risen up the ranks from being a nascent concept to a legitimate commodity that banks are looking to invest in. So much so, that regulatory bodies have had to adapt to an ever-shifting change in compliance, investigating crypto’s risk and reward.

Albeit not in the same category as FIAT (state-sanctioned currency), cryptocurrency is growing into a monetary system that is growing out of its view as the ‘wild west of money’. From its beginnings as a reaction to the financial crash of 2007/8, through to its initial bubble in 2010 via Bitcoin pizza purchases and later hype surrounding Dogecoin prices this year, it’s a regulatory minefield which compliance officers are keeping a watchful eye on.

Our most recent white paper looks into the history and risks of cryptocurrencies, and how regulatory compliance is looking into crypto platforms to make sure they meet the same KYC and AML requirements as FIAT money exchanges.

Regulations and the crypto KYC landscape

As crypto exchanges become de facto, regulators are expanding their reach to manage crypto exchanges and enforce robust KYC/AML checks. This effort will harmonize identity verification and anti-fraud efforts across all financial exchange types.

Highlighting this push, in 2020 the EU set out its Digital Finance Package that encompasses digital finance in economic recovery and looks to standardize a single digital market – encompassing blockchain and AI and including anti-money laundering (AML) and counter-terrorism financing (CTF).

The USA appears to be leading in the crypto KYC/ AML stakes. In the U.S., FinCEN cryptocurrency exchanges must carry out KYC and use effective AML. Currently in the EU, if a crypto exchange only deals with crypto-crypto exchanges, then the legislation does not fully cover the transactions. However, if an exchange is Fiat-crypto or crypto- FIAT, KYC checks and AML is required. There will likely be harmonization across global exchanges in terms of KYC/AML regulation in the next few years.

The challenges to meet AML in crypto exchanges

While risk-based approaches vary slightly from place to place, it is an international trend to leverage enhanced due diligence and use adverse media search to identify risk alerts, beneficial for improving AML for these VA providers.

The way forward with AML checks on crypto exchanges is to reduce risk by using a collated approach to data. The use of sanction data e.g., politically exposed persons (PEPs) and adverse media data should be part of this collated approach to data checks. Robust, compliant, AML screening uses rules to meet both global and local AML requirements.

Looking further into transaction monitoring, it can be used to augment AML checks and look for patterns of unusual transactions. This provides the controls needed for full AML compliance, particularly when automated to distribute alerts internally to identify suspicious transactions in high-risk jurisdictions and industries.

Download the white paper

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Cryptocurrency, once dubbed the ‘wild west of money’, is now settling into the mainstream. Even banks are starting to invest in crypto. Like all other money exchanges, crypto is growing up, and this is causing the regulators to listen.

In this white paper, we explore how regulatory compliance is reigning in the crypto platforms, to make sure that this unregulated industry meets the same KYC and AML requirements that secure FIAT money exchanges must.

Download the PDF from this page.