Quadrant Knowledge Solutions ‘Market Insights research’ provides detailed insights to users about the significance of growing need of AML regulations for crypto currency exchange to combat financial crime and to lessen the inherent hazards of money laundering for virtual assets.
Cryptocurrencies are more susceptible to fraud and money laundering than traditional currencies. Since no personal information can be associated with the public keys used in a transaction, they offer better anonymity than traditional payment options. Online accounts are opened by criminals with digital currency exchanges that accept fiat money from conventional bank accounts. They then begin a “cleaning” process (mixing and layering), in which they transfer funds into the bitcoin network utilising tumblers, mixers, and chain hopping (also called cross-currency). Money is transferred between cryptocurrencies and across digital currency exchanges, the less regulated the better, leaving a trail of transactions that is nearly impossible to follow.
Banks and other traditional financial institutions are in a wait-and-see mode because of concerns about central banks’ and authorities’ lack of control over cryptocurrencies, the anonymity surrounding their transactions, and the price volatility. However, cryptocurrencies are here to stay. Banks and other financial institutions need to start supporting cryptocurrencies now or they will shortly find themselves out of the game.
Crypto companies must adopt the technological solutions that best meet their requirements. Because automation is essential for maintaining compliance and a growing business, most companies find that outsourcing makes more sense than building an in-house solution. Additionally, the crucial steps that demand specialized knowledge include customer onboarding, ID verification, screening, and monitoring, as well as transaction risk assessment and management. The risks of not implementing an automated system for customer onboarding and screening include, but are not limited to, insufficient data for due diligence, a high volume of alerts requiring manual intervention, and, finally, system flaws that result in non-compliance with AML regulations.
Global standards for anti-money laundering legislation are set by the Financial Action Task Force (FATF). When the FATF released cryptocurrency AML guidance in 2014, policymakers in FATF member countries started realizing that Virtual Asset Service Providers (VASPs) are subject to the same laws that apply to conventional Financial Institutions. The majority of the FATF’s cryptocurrency AML recommendations have been legally codified by FinCEN, the European Commission, and numerous other regulatory bodies. Therefore, it is crucial for fintech companies to comprehend the changing AML and KYC regulatory landscape. The enterprise leverages real-time AI-powered document verification approaches, OCR-enabled photo data extraction, face matching, and machine learning-based fraud filters to automate and speed up the Crypto KYC verification process
According to Vaishali Moitra, Analyst at Quadrant Knowledge Solutions “The anonymity of cryptocurrencies, ease of cross-border transactions, and decentralised peer-to-peer payments make them an excellent option for money laundering. Even though many countries have started implementing anti-money laundering laws and regulations that includes crypto exchanges, their implementation and actual compliance remain difficult. Regulators are therefore extending their control over bitcoin trading by implementing strict AML and KYC compliance protocols and checks.”
