Are You Stopping Money Laundering or Simply Satisfying a Regulatory Checklist?

5 mins read

The need to regulate the cryptocurrency and digital asset world has inevitably pushed businesses of this nature to bring forward the compliance and Anti-Money Laundering (AML) agenda. 

  • Centralized and digital asset businesses have a strong responsibility to follow AML regulation that can mitigate any associated user and transactions risks, and simultaneously, stop financial crimes. 
  • A recent study by Coinfirm showed that 69% of 216 crypto exchanges do not have complete and transparent KYC procedures in place. While another report by CipherTrace showed that one-third of the top 120 exchanges have weak KYC crypto processes, while two-thirds lack strong KYC policies. 

It has become merely impossible to envision the centralized forefront of cryptocurrency field without legislation and regulations coming into place. They reform of how Know Your Customer (KYC) measures are implemented, in addition to mitigating any potential or existing AML/CFT risks. It has become as if regulators and digital asset businesses are more concerned with building an accepted AML/CFT framework rather than stopping Money Laundering.

Businesses are required to take a step back in order to assess whether the internal policies, procedures and functions implemented are in fact stopping financial crimes, rather than simply satisfying a regulatory checklist. 

It is vital to dissect the core of the innate risks associated with digital assets and the blockchain, and cater to the new solutions provided to attend to that. 

Here are a few major points to look at:

1. Training

Although training in the AML/CFT framework is often seen as a rather complementary aspect of building a robust AML system, it is the core of learning how to implement everything that comes after. The complexity of the blockchain and the digital asset world requires compliance and AML professionals to dive deep into the type of digital asset businesses (centralized and decentralized), the type of transactions that take place (crypto to crypto, crypto to fiat, fiat to crypto), and the traditionally known KYC and transaction monitoring- in the digital form of today. 

2. KYC

KYC innately has been a key pillar for a robust AML program. Although deemed controversial given the anonymity of the blockchain, centralized and regulated digital asset businesses and exchanges must carry out their operations with KYC. 

KYC is now required to carry distinguished and tailored requirements also, including information and documents from users, that are directly proportional to the users’ source of funds, wealth and background as citizenship and residency. 

In parallel, corporate and institutional entities, are required to satisfy even a lengthier list of KYC requirements, given an expected higher volume of transactions and the more extensive parties involved. 

3. Transaction Monitoring

Monitoring transactions on the blockchain has been proven successful over the past couple of years. Some of the largest terrorist financing organizations internationally have been captured. This was thanks to the best cryptocurrency investigation and transaction monitoring solutions, like Chainalysis, that have allowed a deep and unique insight into blockchain transactions and wallets. 

The Chainalysis Crypto Crime Report 2022, highlighted that in 2021, transactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume.

With solutions like Chainalysis, cryptocurrency businesses are encouraged more than ever to implement such tools and learn how to use them properly, to mitigate any criminal red flag.

It becomes the responsibility of every business to ensure that the wallet and funds associated with its users are properly screened, and internal functionalities including the approval of deposits and withdrawals are effectively put into place.

What does the future hold?

Anti-Money Laundering specialists in the cryptocurrency sphere acknowledge that there is a lot of work to be done, especially with the rise of DeFi and in parallel, other means that can disguise the identity of users and the sources of illicit funds. It remains a strong responsibility for centralized businesses to attend to the duty of bridging the gap of what is missing today and strive to build stronger, more advanced, and catered solutions that can mitigate any associated user and transactions risks, and simultaneously, stop financial crimes. LYOPAY is into this at 100% to create a regulated and safe business.

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7 Comments

  1. Genau so soll es sein das braucht ein langfristiges Business πŸ€·πŸ»β€β™‚οΈπŸ’ͺ✌️

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