Contents

• Reasons Why One Should Invest in KYC Companies?
• Challenges Faced By KYC Companies in 2023
• Fraud & Money Laundering Cases of 2023
• IDMERIT: A Trusted and Reliable KYC Solution Provider
• Conclusion

Businesses must remain informed about the top KYC companies since they are concerned about complying with regulatory standards and protecting themselves from identity fraud. These companies also offer document verification, transaction monitoring, and customer due diligence solutions, helping Banks, Cryptocurrency industries, Healthcare sector, Insurance sectors and
Fintech companies fight financial crime.

Reasons Why One Should Invest in KYC Companies?

1. Verifying User Identities- KYC systems are ubiquitous in the financial industry as a crucial tool for verifying user identities.
2. Combating Money Laundering- KYC verification companies provide robust KYC solutions to safeguard user privacy, combat money laundering, and eradicate financial fraud.
3. Specialised KYC Providers- Specialised KYC providers develop innovative solutions to enhance the comprehensiveness and accuracy of user identification processes.
4. Regulatory Compliance Assurance- KYC companies ensure businesses comply with evolving regulatory standards, reducing legal risks and financial penalties by helping enterprises navigate complex compliance requirements.
5. Risk Mitigation and Enhanced Due Diligence- KYC companies conduct thorough background checks and due diligence on individuals and businesses.
6. Customer Trust and Reputation Building- Implementing KYC measures demonstrates customer security and privacy commitment. This, in turn, fosters trust among clients and contributes to the overall positive reputation of a business.

Challenges Faced By KYC Companies in 2023

As the digital realm expands, seamless integration with various systems and databases becomes increasingly critical, adding another layer of complexity for KYC companies. In 2023, KYC companies faced many challenges as they navigate the evolving landscape of identity verification.

• One significant hurdle is the constantly changing regulatory environment, with governments worldwide tightening their grip on digital transactions to combat financial crimes.
• Staying abreast of these regulatory shifts and ensuring compliance with the latest standards requires KYC companies to be agile and adaptive.
• Moreover, the rapid advancements in technology pose another challenge, as cybercriminals continually develop more sophisticated methods of identity fraud.

KYC providers must invest in innovative solutions to stay ahead of these malicious actors and safeguard sensitive information effectively. The challenges KYC companies face in 2023 underscore the industry’s dynamic nature, requiring constant innovation and adaptability to address regulatory, technological, and operational complexities.

Fraud & Money Laundering Cases of 2023

Several fundamental changes and updates were made to KYC regulations in 2023, including an increased focus on digital identity verification. As more businesses moved online, KYC regulations evolved to incorporate methods for verifying digital identities, including biometric authentication or blockchain-based methods.

Here are some stats that show the current situation of fraud and money laundering in the country:

• Money laundering plays a pivotal role in various criminal operations; it remains a persistent challenge impacting global economies significantly. The annual estimate of laundered money is nearly 5% of the worldwide GDP, totaling an astonishing $800 billion.
• A case in point is HSBC, an international bank that faced an $85 million fine due to its failure to uphold proper records as part of its AML measures, resulting in a lapse in filing suspicious activity reports (SARs).
• Liberty Reserve, a Costa Rican cryptocurrency platform, was implicated in $6 billion worth of suspected money laundering activities, posing a threat to early cryptocurrency enthusiasts.

IDMERIT: A Trusted and Reliable KYC Solution Provider

IDMERIT stands out as a trusted and reliable solution provider in KYC services. Offering a comprehensive suite of solutions, IDMERIT has established itself as a go-to resource for businesses seeking robust identity verification services. As a leader in KYC services, IDMERIT stands out as a trustworthy and reliable solution provider. With its comprehensive solution suite, IDMERIT is the first choice for businesses seeking robust identity verification services. IDMkyc provides KYC solutions that ensure a thorough and secure verification process.

Enhanced AML protection is made possible by IDMaml, which extends the platform’s capabilities. IDMscan, the flagship product of IDMERIT, offers accurate and efficient ID verification with the help of advanced scanning technology. Its video KYC solution, IDMlive, which incorporates live interactions to enhance the verification process, further demonstrates the company’s commitment to innovation. Despite today’s complexities of identity verification, IDMERIT remains a trusted partner for businesses.

Below are few more KYC companies that are reliable for users in 2023:

KYC Germany: KYC Germany is a trusted provider of robust identity verification solutions, focusing more on video KYC and aligning with the regulatory standards set by BaFin in Germany. Recognized for compliance and innovation, it significantly contributes to the evolving identity verification landscape.

KYC Spain: KYC Spain, a trusted and reliable KYC service provider in Spain, is a top choice for businesses seeking secure transactions in 2023, renowned for its robust solutions and reliable services.

KYC UK: KYC UK is a leading provider of identity verification services. It assists UK businesses in facilitating seamless customer onboarding and ensuring reliability in the complexities of identity verification, making it a trusted ally in 2023.

KYC Sweden: KYC Sweden is a trusted provider of KYC solutions, specialising in robust identity verification processes for businesses and financial institutions, ensuring secure customer onboarding and digital compliance in 2023.

Conclusion

In conclusion, as the digital landscape evolves, KYC companies are at the forefront of ensuring secure and compliant online transactions. IDMERIT and other industry leaders exemplify the commitment to innovation and reliability in the face of evolving challenges, making them indispensable partners for businesses navigating the complexities of identity verification in 2023.

The post How to Find the Right KYC Company For Your Organisation? appeared first on IDMERIT.

CONTENTS

• What are the challenges faced by crypto exchanges without KYC?
• The KYC Landscape in Crypto Exchanges
• KYC Builds Trust and Lowers the Risk of Transparency
• Benefits of KYC in Crypto Exchanges
• Overview of Crypto Exchanges in 2023
• The Role of KYC Solution Providers in Securing Crypto Exchanges
• Unlocking Efficiency with IDMERIT

What are the Challenges Faced by Crypto Exchanges Without KYC?

Before the widespread adoption of KYC in the cryptocurrency industry, there were several challenges:

1. Possibility of increasing Fraud: Cryptocurrencies, in their early days, offered a high degree of anonymity. While this was seen as a benefit by many, it also attracted individuals involved in illegal activities such as money laundering and fraud.
2. Reputation Risks: The association of cryptocurrencies with illegal activities tarnished their reputation. Trust and acceptance in the broader financial ecosystem were hindered, slowing down mainstream adoption.
3. Financial Risks: Without robust KYC solutions, financial risks and scams increase. Financial criminals who wanted to commit fraud were often attracted to crypto exchanges with no transparency or accountability. This led to financial losses.
4. Security Threats: The absence of KYC measures has made cryptocurrency exchanges more susceptible to hacking and cyber threats. These vulnerabilities resulted in significant losses for both users and platforms.

The KYC Landscape in Crypto Exchanges

KYC in crypto exchanges refers to the process of verifying the identity of users. It’s a robust mechanism that helps crypto platforms establish the real-world identities of their customers. The primary goal is to prevent fraudulent activities and to create a secure environment for trading digital assets.

To implement KYC effectively, crypto exchanges often turn to KYC solution providers. These solution providers offer a suite of services tailored to the unique needs of the cryptocurrency industry. By collaborating with these experts, crypto exchanges can streamline the onboarding process, enhance security, and reduce the risk with financial regulations. Below is how KYC solutions unlock the power in crypto exchanges:

1. User Verification: KYC solution providers use a variety of methods, including document verification and facial recognition, to ensure users are who they claim to be.
2. Risk Mitigation: By assessing user-profiles and tracking their activities, KYC solutions help exchanges identify high-risk individuals or entities. This proactive approach reduces the potential for financial crimes.
3. Enhanced Security: By implementing robust identity verification, crypto exchanges protect themselves and their users from security breaches and unauthorised access.

KYC Builds Trust and Lowers the Risk of Transparency

Financial misconduct, spanning a spectrum of illicit activities such as tax evasion, bribery, graft, financing of terrorism, and cyber intrusions into online banking systems, imposes an annual financial burden of approximately $1.4 to $3.5 trillion globally, with an estimated $2 trillion channelled through the laundering process.

Notably, crypto exchanges stand as susceptible targets, experiencing losses amounting to $4.26 billion in 2019 alone. The integration of Know Your Customer protocols within the realm of cryptocurrency and crypto exchange platforms can play a pivotal role in the identification and authentication of users, thereby diminishing the risk of financial crime and unauthorised operations.

Benefits of KYC in Crypto Exchanges

Implementing KYC solutions in crypto exchanges brings a multitude of benefits. These include:

1. Enhanced Trust: Users are more likely to trust and engage with exchanges that prioritise security and trust. KYC solutions make the decision-making process easy on the basis of identity verification.
2. Reduced Fraud: KYC solutions act as a deterrent to fraudsters and significantly reduce the incidence of fraudulent activities.
3. Combating Money Laundering: KYC & AML solutions help crypto exchanges avoid hefty fines and reputational damage. These solutions help in recognizing people involved in money laundering and terrorism financing.
4. Reduced Operational Costs: Automated KYC processes streamline user onboarding and reduce the need for manual verifications, cutting operational costs.
5. Global Expansion: Crypto Exchanges that prioritise KYC can expand to more countries by demonstrating a commitment to international regulations.

Overview of Crypto Exchanges in 2023

In 2023, cryptocurrency prices demonstrated remarkable resilience, especially considering that both Bitcoin and Ethereum had their worst annual performances in 2018. Despite a relatively unexciting performance in September, Bitcoin prices have surged by 63.3% year-to-date, while Ethereum prices have increased by 40.2%.

According to the most recent research conducted by Coinfirm, it has come to light that 69% of the 216 crypto-related businesses under scrutiny do not possess “comprehensive and transparent” KYC solutions, a critical component of their AML initiatives.

A separate report from CipherTrace further underscores this concern, indicating that among the top 120 crypto exchanges, one-third exhibit subpar KYC processes, and two-thirds are deficient in maintaining robust KYC policies.

The Role of KYC Solution Providers in Securing Crypto Exchanges

KYC solution providers help to authenticate business identities for crypto industries. They offer a range of services that encompass identity verification. The following identity verification methods are essential for crypto exchanges to stay secure and stable:

1. Document Verification: KYC solution providers enable exchanges to verify the authenticity of identity documents, such as passports and driver’s licences.
2. Biometric Authentication: Facial recognition technology ensures that the person submitting the documents is the same as the one in the ID.
3. Watchlist Screening: KYC solution providers allow exchanges to check users against global watchlists, identifying politically exposed persons (PEPs) and other high-risk individuals.
4. Ongoing Monitoring: Regularly updated profiles and transaction monitoring help exchanges identify changes in user behaviour that may indicate illicit activities.

Unlocking Efficiency with IDMERIT

There are several key strategies through which a crypto management platform can enhance security:

• Advanced identity verification
• Efficient onboarding process
• Ongoing monitoring
• Risk assessment tools

IDMERIT provides robust identity verification and Know Your Customer solutions. After harnessing these identity verification solutions, you’ll be able to manage custom workflows tailored to different usage scenarios and incorporate a range of verification methods to align with KYC methods. As a result, we not only guide in maximising conversion rate but also significantly enhance the efficiency of the verification pipeline.

If you’re interested in discovering how IDMERIT can assist you in achieving identity trust and security for your cryptocurrency exchange, please don’t hesitate to get in touch with us or join our community for a direct conversation with our product team. We’re here to engage in a discussion with you!

The post A Comprehensive Guide of KYC in Crypto Exchanges in 2023 appeared first on IDMERIT.

This blog helps to identify that many leading identity verification providers have now started offering Video KYC solutions, making it easier for businesses to onboard customers securely and efficiently.

CONTENT

• What is KYC? How does it help in Reducing Fraud and Authenticating a Customer’s ID document?
• What is video KYC?
• How did Video KYC replace traditional KYC methods in identifying a user’s identity?
• What are the benefits of Video KYC?
• Importance of Video KYC in Different Countries
• Conclusion
• More About Us

What is KYC? How does it help in Reducing Fraud and Authenticating a Customer’s ID document?

Know Your Customer (KYC) is an identity verification process used by businesses and financial institutions to verify the identities of their clients. KYC has become a powerful tool for industries to protect themselves and their clients from the ever-evolving landscape of fraud and risk.

The main aim of KYC is not only to prevent fraud but also to authenticate user’s identities to ensure that they are who they claim to be. It also helps in complying with regulatory requirements and safeguarding sensitive customer data.

Our robust identity verification solutions can help financial institutions and businesses effectively reduce the risk linked to fraudulent activities. These solutions incorporate cutting-edge technologies like face recognition, document scanning, and biometrics to guarantee the precision and authenticity of the user’s identity.

The KYC process works by collecting and verifying essential information from individuals to confirm their identity and make sure they are who they say they are. This typically includes personal details such as name, address, date of birth and often involves document verification, like passport and driver’s licence.

What is video KYC?

In this advanced world, digital KYC has become paramount. Video KYC, or Video Know Your Customer, is an advanced form of KYC that is used for verifying a user’s identity remotely through a Video call. Video KYC solution providers offer video KYC solutions to verify customers’ identities by checking their documents and matching them with their real-time appearance.

These solutions involve a live video call between an agent and a client. The purpose of this live video call is to verify identities, which reduces the risk of fraud and enhances customer convenience and security. The agent on the other side of the video call verifies the user’s identity by verifying their details and matching them with their real-time appearance.

Video KYC has now been adopted by several industries, including Banking and Finance, the Cryptocurrency exchange industry, fintech companies, Education, Healthcare, as well as the Insurance sector. Additionally, businesses can integrate Video KYC into their systems through Video KYC APIs, making the process even more streamlined and efficient.

How did Video KYC replace traditional KYC methods in identifying a user’s identity?

Before entering the digital world, KYC was performed manually with conventional methods. It was one of the main concerns for banks and other financial institutions; e.g., When the banks used to onboard clients, they asked them to fill in forms, scan their identity documents and then make them wait for an answer. In some cases, they also used to visit client’s residences to check whether they had given the correct address proof or not. This was no doubt a time-consuming job and also cost a lot of money.

In contrast, Video KYC has emerged as a revolutionary solution for this problem, replacing traditional KYC methods for identity verification. Unlike complicated paperwork and in-person visits, Video KYC solutions leverage video conferencing platforms and APIs to streamline the process. It has undoubtedly reduced the cost and saved time and effort of both the client and financial institutions. It is more suitable than the traditional method because it ensures security and accuracy at a higher level.

Video KYC platforms enable individuals to authenticate their identities via secure video calls, ensuring immediate verification and minimising the potential for fraudulent activities. The adoption of Video KYC has revolutionised the landscape of identity verification, enhancing speed, efficiency, and user-friendliness while diminishing the dependence on conventional KYC approaches.

What are the benefits of Video KYC?

Video KYC is more accurate because automated algorithms can detect features and patterns that are invisible to the human eye. There are several ways that serve as a benefit of Video KYC;

• It is extremely effective at preventing deep fake, spoofing and other identity frauds.
• It saves both time and cost for an individual as well as a company.
• It helps onboard users safely and securely.
• It eliminates the need for physical presence, allowing identity verification remotely.
• Video Kyc solution providers guarantee the security of video calls and data, adhering to rigorous regulatory standards.
• It is beneficial for individuals as well as banks and financial institutions.

The video KYC process involves a live video call between a user and a verification agent. During the call, the role of the agent is to review the customer’s identity documents, such as passports or driver’s licences, ensuring their authenticity. This real-time interaction enhances the accuracy of identity verification and reduces the risk of fraud.

It saves resources and helps in customer onboarding, becoming a win-win situation for both businesses and users.

Importance of Video KYC in Different Countries

Video KYC has taken the lead due to their immense transformative impact in the field of digital identity verification. Here are a few countries that have made Video KYC mandatory in digital identity verification procedures-

1. Germany- Video KYC has been a part of their regulatory landscape since 2015 when Germany’s financial regulatory body (BaFin) introduced Video KYC requirements for remote verification.
2. Spain- Since 2018, SEPBLAC, their AML authority, has demanded an authorised Video KYC process for financial institutions.
3. India- According to Section 18 of India’s Master Direction on KYC, financial institutions and banks have to include Video KYC in their verification processes mandatorily. They are also told to include Video KYC, specifically in the form of Video KYC interviews.
4. European Union- It has been made compulsory in the European Union that a Qualified Electronic Signature (QES) will only be granted on one condition when the individual has undergone a video verification.
5. United States- Video KYC has entered various sectors, including Fintech, healthcare and banks. Companies are dependent on video KYC platforms to verify the identities of customers and patients, ensuring data security and regulatory compliance.

Many national anti-money laundering (AML) laws require or allow video KYC for high-risk customers and transactions. Here are some jurisdictions where video identification can be used for KYC:

• Australia
• Germany
• Canada
• India
• Ireland
• Japan
• New Zealand
• Singapore
• South Korea
• United Kingdom
• United States

Conclusion

Video KYC solutions have built a position of their own in this digital era. Video KYC companies have played a vital role in making these solutions accessible across various industries and countries. The transformation from traditional KYC methods to Video KYC has also been remarkable. From Germany to the United States, Video KYC is becoming a mandatory component of the identity verification process, further validating its role as the future of digital identity verification.

More About Us

IDMlive is an innovative solution offered by IDMERIT, revolutionising the KYC process for video verification. IDMlive not only verifies an individual’s presence but also features the ongoing verification process at the dashboard. It also ensures compliance with several regulations like KYC, GDPR, and AML.

If you are seeking an efficient video KYC solution to authenticate your customers’ identities, IDMERIT’s Identity Verification platform is worth looking at. Reach out to one of our Identity Experts and get a no cost, no commitment product demonstration along with consultation tailored to your specific needs.

The post Video KYC: The Future Of Digital Identity Verification appeared first on IDMERIT.

Contents

• What is KYT – Know Your Transaction 
• KYT is the Future of KYC
• Why KYC isn’t Enough
• Which Industries Need KYT
• KYT and Transaction Laundering
• Know Your Transaction (KYT) in Cryptocurrency
• Important KYT Regulations
• IDMkyX: The X Factor

What is KYT – Know Your Transaction

Know Your Transaction (KYT) is a derivative of AML Transaction Monitoring and refers to examining both fiat and crypto financial transactions. KYT is considered the future of Know Your Customer (KYC) as merely identifying individuals and businesses isn’t enough today. There is a growing need to examine the onboarding clients’ transaction activities continuously. Transaction Monitoring or KYT is essential to determine money laundering, fraudulent activities, or suspicious behaviors, sometimes as serious as a mass proliferation of weapons or drug trafficking.

Certainly, the Transaction Monitoring method applies to both fiat and cryptocurrency; it cannot be denied that the KYT gained its prominence with the advent of cryptocurrencies, as because of the anonymous nature of crypto transactions, the investigative authorities have to follow the provenance of transactions to track fraud rather than following the identities behind it. Thus, it is indisputable that KYT has become the new KYC.

KYT is the Future of KYC

The fintech and international regulatory experts perceive that Know Your Transaction (KYT) is the future of KYC. The rising adoption of cryptocurrency has further amplified the scope of KYT as it gives institutions the aptitude to break down and structure crypto transactions for AML monitoring and risk mitigation. KYC is identifying and verifying the authenticity of individuals and businesses; performing due diligence based on the risk factors they bring to the institutions that offer services to them. While KYT is a step further, programmed to drill down the granular datasets of client transactions based on their risk profiles and detect bad or fraudulent transactions they perhaps perform.

What is KYT

Why KYC isn’t Enough

The identity world is constantly shifting, and institutions must keep up with continuous due diligence on their client base. At a global level, there is an ongoing deliberation wherein institutions are trying to realize why KYC isn’t enough to deter financial fraud and that they would now require KYT as part of AML measures. Businesses must understand that Know Your Customer (KYC) is one of the most vital of all AML procedures as it fulfills the onboarding procedure of verifying ID documents, proof of address, and beneficial ownership.

However, one may still argue that KYC isn’t enough as there must have ongoing due diligence in the process to ensure client risk levels in the long run. Altogether, all these AML activities must be achieved without compromising the customer experience. Hence, KYT Transaction Monitoring has probably been weighed as the most sought-after method, wherein individual and business activities are monitored in real-time without creating extra hassle for the clients. Clients are only approached when a transaction hits a red flag.

KYC and screening against PEP, Sanctions, and Adverse Media give fundamental profiling on the onboarding clients. Nevertheless, KYC is a static approach lacking an advanced investigation to monitor client transactions and estimate their risks. KYC and screening procedures rely heavily on publicly available data; the information could be outdated, manipulated, or completely made up. There are instances when institutions have even lost potential valuable clients due to false positives and inaccurate red flags.

At the same time, the Know Your Transaction (KYT) method leverages identifying transaction laundering activities that involve illegal, suspicious events. KYT Transaction Monitoring program reveals the true business activities of the clients; it brings data-driven conclusions by examining transactions in real time. Based on patterns and traits derived from the raw transaction data and relating the same with the nature of the business, red-flag indicators are derived on location, payment velocity, timing, originating bank, etc.

Which Industries Need KYT

Every industry today that deals with mass onboarding and bulk transaction processing of clients would require Know Your Transaction (KYT). It can be said that KYC and screening procedures provide identity insights. At the same time, KYT gives transaction insights on bits of information that could otherwise be difficult to follow without proper techniques. Thus, KYC and KYT offer a comprehensive AML risk mitigation solution, in which KYT programs are always custom-built per industry requirements. The customization is based on the transaction type, i.e., cash or card payments, SWIFT transactions, inward/outward remittance, payment using trade finance instruments, third-party payment processing, etc.

However, the term KYT has recently become more synonymous with crypto AML, as in blockchain and cryptocurrencies, the focus is more on the transaction than the identity. Here, the authenticity is attributed to the transaction history linked to patterns, not the blockchain clients. KYT has become more prominent in banks and financial institutions that serve digital assets or blockchain clients. With the introduction and adoption of the FATF Travel Rule, it’s now inevitable to complement KYC due diligence with the KYT efforts to complete the compliance measures related to crypto exchanges and VASPs.

KYT and Transaction Laundering

Transaction Laundering is an online form of money laundering. The mechanism is rather skillful as it involves shell website operations to disguise fraudulent activities from the AML regulators. Transaction Laundering involves a front legitimate-looking site with visibly clean advertising, but the website sells illegal/prohibited products or services via a camouflaged or shell website in the background. This type of money laundering method deceives the banks and credit card networks as they assume to be processing the payments for a legitimate site.  KYT Transaction Monitoring has tremendous potential to examine uncanny merchant activities and their behavioral patterns to unearth prohibited ecommerce websites disguising their products or services from the authorities via ingenious Transaction Laundering schemes.

Know Your Transaction (KYT) in Cryptocurrency

It is now apparent that Know Your Transaction (KYT) is an offshoot of KYC, and it’s only when the two work in conjunction that the customer risk mitigation process is complete. Particularly in the Blockchain industry, the KYT in Cryptocurrency checks suspicious wallet addresses, large buying or selling cryptos, anonymous crypto exchange activities, etc.

Since KYT is the KYC of Blockchain, the crypto AML process also comprises flagging sanctioned individuals or entities, filing irregular asset transfers crossing thresholds, continuously monitoring dark markets, and halting possible scamming activities and misusing of cryptocurrencies.

Important KYT Regulations

The Know Your Transaction (KYT) monitoring system aims to assist the national AML authorities and Financial Intelligence Units (FIUs) in timely actions against money launderers, miscreants, and lawbreakers. The KYT Transaction Monitoring programs are based on international AML standards, including payment reporting thresholds and red-flag indicators, as set by Financial Action Task Force (FATF) 40+9 AML-CFT Recommendations, EU Anti-Money Laundering Directives (especially the 5^thAMLD) and other such international organizations. The international AML standards are mainly integrated with fines and imprisonment set by national laws pertinent to money laundering and financial crimes.

The financial transactions are monitored in real-time, using predetermined programming algorithms to track suspicious behavioral patterns. It is on the part of the Money Laundering Reporting Officer (MLRO) of the regulated institutions to report the identified fraud and criminal transactions to the state FIUs which further investigates the data-driven reports and takes sufficient actions against those individuals or businesses accountable for such activities. The recent FATF Travel Rule suggests continuous tracking of transactions involving various cryptocurrencies for Virtual Assets Service Providers (VASPs). The FATF Trave Rule calls for appropriate KYC due diligence and risk scoring of crypto users and digital asset investors.

IDMkyX: The X Factor

Boost your KYC efforts with IDMkyX KYT from the brand of IDMerit. Understand the importance of KYT Transaction Monitoring on Blockchain and AI-based Machine Learning technologies.

Explore various vigilance possibilities for your business, and abide by the latest FATF, AMLD, and your national AML-CFT guidelines with IDMkyX. Book a free Know Your Transaction (KYT) consultation and clear your doubts about why your KYC capabilities are incomplete without an effective KYT Transaction Monitoring compliance program.

The post Know Your Transaction (KYT) – What is KYT and Why KYC isn’t Enough Today? appeared first on IDMERIT.

How Does AML apply to Crypto?

Cryptocurrency advancement and its affiliations with financial crimes go hand in hand. Anti-Money Laundering (AML) in crypto is continuously evolving for its complex digital nature; criminals heavily exploit cryptocurrencies for bribery, corruption, narcotics trafficking, and ML-TF activities. Recently, cryptocurrencies have become the most sought-after method for miscreants who scheme to convert illegal crypto proceeds to fiat currencies. Other potential cryptocurrency money laundering threats involve online scams, ransomware, human trafficking, dark web activities, and sanctions or PEP watchlists evasions.

Different nations and international organizations have introduced crypto AML regulations to help the crypto industry combat financial crimes. Additionally, many nations have even banned crypto mining and put stricter vigilance on crypto exchange activities. An increasing number of nations have also merged the FATF Crypto Travel Rule within their AML regulations for cryptocurrencies. However, the regulations in the field of AML for crypto firms are still in their nascent stage.

Anti-Money Laundering and Crypto Regulations

Cryptocurrency Regulations in the U.S.

In the United States, cryptocurrencies are not yet defined as legal tender by its major AML-CFT standards-setting body, the Financial Crimes Enforcement Network (FinCEN). All state-approved cryptos are called “other value that substitutes for currency”. The BSA guidelines and registration with the FinCEN are the two important crypto regulations in the USA that all cryptocurrencies and Virtual Assets Service Providers (VASPs) must abide by and remain updated with.

The U.S. FinCEN AML-CFT Program – on crypto plus VASP- summarizes every aspect of AML-CFT, i.e., Know Your Customer (KYC), Currency Transaction Report (CTR), Suspicious Activity Report (SAR), Suspicious Transaction Report (STR), and Customer Due Diligence (CDD). The FinCEN is very particular about its June 2019 Travel Rule that mandates VASPs to maintain crypto CTR, SAR, and STR records and simultaneously report transactions crossing standard thresholds. For the crypto exchanges, the threshold is 10,000 USD.

The Securities and Exchange Commission (SEC) mentions that Cryptocurrencies are securities just like digital wallets. On the other hand, there is free trade for crypto derivatives, as mentioned by the Commodities Futures Trading Commission (CFTC).

The Office of Foreign Asset Control (OFAC), the U.S. statutory body on sanctions compliance, asserts mandatory screening against all virtual currency transactions, failing which the transaction must be blocked off instantly. FinCEN and OFAC applaud the Financial Action Task Force (FATF) Travel Rule regulation for scrutinizing cross-border crypto payments and anonymity in transactions.

Cryptocurrency Regulations in the U.K.

The Financial Conduct Authority (FCA) is the main AML-CFT body for cryptocurrency measures in the United Kingdom. All the Virtual Asset Service Providers (VASPs) must be registered with the FCA. Cryptocurrencies are not yet considered legal tender, and all crypto trading platforms are expected to follow the U.K. crypto regulations. As part of its AML-CFT measures, the FCA focuses on Identity Verifications of the crypto users and guides the exchanges against negligence while detecting anonymity in crypto transactions. The regulatory body puts unrelenting measures on Know Your Customer (KYC) and Customer Due Diligence (CDD) activities for combating terrorism as terrorists increasingly adopt new channels for the proliferation of weapons. Especially for those involved in high-risk crypto trading activities must be screened against sanctions, PEP, and adverse media lists.

All crypto-trading taxable earnings as defined by the Her Majesty’s Revenue and Customs (HMRC) in the U.K. Whether in the form of trading, investments, or Initial Coin Offerings (ICOs), all crypto activities in the U.K. come under the scope of AML-CFT regulations and are subject to transaction monitoring and record keeping.

International Regulations on Cryptocurrencies

The Financial Action Task Force (FATF) Recommendation 16 on DeFi cryptocurrencies has introduced stringent identity verification measures for crypto users and beneficiaries.  The FATF Crypto Travel Rule for the VASPs emphasizes maintaining the correct identification of the crypto users, including originators and beneficiaries. The FATF Recommendation 16 asks the VASPs to maintain and update the user’s Personally Identifiable Information (PII). The user database should be easily retrieved while investigating the Suspicious Activity Report (SAR) in any transaction exceeding the 1000 USD threshold. The FATF also propagates well-established subpoena laws while examining Suspicious Transactions Reports (SARs) for cryptos. An important FATF measure includes blocking crypto payments from sanctioned nations, individuals, or groups.

The 5th European Directive on Money Laundering 2015 mentions video-based identification, biometric authentication, and KYC verifications of crypto users. The 5AMLD says VASPs and crypto wallets follow the same AML-CFT measures as other regulated institutions. The Financial Intelligence Units (FIUs) of the member nations hold the right to authenticate the KYC documents of the crypto users from the crypto exchanges and crypto wallet companies.

How cryptocurrency can disrupt the fiat mode of trading and payments

• With easy conversions from fiat-to-crypto and crypto-to-fiat on popular exchanges, users are spared from exorbitant trading and transaction fees to buy popular cryptos. Buyers can also easily access cryptos on crypto POS terminals, pay cash and buy cryptos with much lesser transaction fees.
• The cryptocurrency debit card has amplified crypto potential in the trading system and has brought a revolutionary change in breaking the ‘asset-like’ image of these virtual currencies. eCommerce platforms have welcomed this disruption in payment systems for online shopping and utility and restaurant bill payments.
• There has been a significant decrease in crypto trading fees, with easy wallet-to-exchange syncing. Buying and trading on cryptocurrencies have been made super easy with these new technologies in the digital currency industry.
• With multiple authentication methods, holding crypto wallets for investors/traders has become more secure. Trading on exchanges and syncing the account with wallets is no longer time-consuming. It doesn’t require extra trading/transfer fees or excessive loading charges.
• For off-chain and on-chain transactions, the exchanges have buyer-seller agreements to meet the risk regulations. Crypto payment exchanges offer instant, fraud and chargeback-free transactions.
• Today’s payment gateways offer B2C crypto transactions with relatively less recurrent fees. The gateways support fiat and crypto payment modes, integrated with multiple cryptocurrency coins and tokens.

AML Transaction Monitoring in the Crypto Industry

There are various intricacies involved with Crypto AML Regulations; the biggest and the most difficult to address is the traceability of the transactions, as customer onboarding and customer relationships are completely non-face-to-face; digital currency promotes anonymous funding and anonymous cross-border transfers.  However, recently major crypto exchanges have fortified their onboarding identity verification security process of the users and their risk-based due diligence and continuous monitoring to withhold unverified suspicious transactions.

The non-face-to-face methods for VASPs and crypto wallet onboarding make cryptocurrencies a considerable high-risk business. Regulated businesses are advised to operate crypto AML Transaction Monitoring Software to combat money laundering and terrorism financing-related threats.

IDMerit extends state-of-art crypto AML Transaction Monitoring Solutions to crypto exchanges worldwide. Contact our Crypto AML Regulations Expert today to discuss an end-to-end Crypto AML-CFT software for your business.

The post A Guide to Anti-Money Laundering (AML) for Crypto Firms appeared first on IDMERIT.

The US government has taken necessary steps in ensuring cryptocurrency regulations. However, it also authorized individual states to introduce their own laws. The US government is positive about blockchain technology and crypto-asset funds. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Etherum, Bitcoin Cash and Ripplecoin.

Despite its support for the use of crypto-asset funds, the US government has concerns over issues of user protection. Below are some of the issues:

• Crypto-asset funds provide users with a very high level of anonymity. This kind of anonymity is what fraudsters and terrorists need to thrive.
• Transactions are also irreversible. This means that users cannot get back funds transferred to a scammer or fraudster.

The National Defense Authorization Act (NDAA)

Despite the issues for concern, the government knows that there has to be some level of compromise from both parties. Late last year, the houses of Congress passed the bipartisan National Defense Authorization Act (NDAA) for Fiscal Year 2021. This act is will help fight against terrorism and ensure fraud prevention. Below are some details of the act that affects the ownership and usage of crypto asset funds as well as other blockchain platforms:

• The Financial Crimes Enforcement Network (FinCEN) is to collect a database of information on cryptocurrency corporations. Corporations that own, operate or transact using cryptocurrencies will have to register with the FinCEN.
• These cryptocurrency regulations and its compliance are not for large firms alone. Smaller companies are now required to disclose beneficial ownership information to FinCEN.
• The act also prohibits individuals from knowingly concealing or making attempt to conceal, falsify or misrepresent a financial institution, the ownership or control of crypto asset funds involved in any monetary transaction of more than $1,000,000.
• The NDAA act also prohibits from falsifying, concealing, misrepresenting or attempting to falsify, misrepresent or conceal information in instances where the owner or the person who controls these crypto asset funds is a senior foreign political figure or any immediate family member or close associate of a senior foreign political figure.
• Whistleblowers can get up to 30% of the money from cases where the penalties are monetary of $1,000,000. However, these whistle blowers must report actionable information about BSA AML/CFT violations.
• Digital and Cryptocurrency providers are to report cases of suspicious activities involving the use of digital and cryptocurrencies.
• The Financial Crimes Enforcement Network (FinCEN) now has the authority to punish firms that do act in line with the current cryptocurrency regulations. Penalties will be in line with the laws overseeing cryptocurrency regulations.

Further Cryptocurrency Regulations

The current NDAA act is seen as merely a start as the legislative arm of government needed to “start from somewhere. There are current talks to amend the current laws regulating the ownership and use of crypto asset funds. This proposed cryptocurrency regulations would see to a strict monitoring of transactions including crypto asset funds.

• Provision of information on transactions above $3,000. This information include but are not limited to: contact information of the customer, type or crypto-asset funds used for transaction, contact information of the recipient of such crypto-asset funds, time of the transaction and other necessary information.
• Banks and other money service businesses will have to report transactions involving more than $10,000 to the FinCEN within 15 days from the date of the transaction.

The FinCEN has announced its intent to amend the BSA’s Foreign Bank and Financial Accounts regulations. In line with this amendment, individuals and entities within the US who have crypto asset funds worth more than $10,000 will now declare it as part of their assets. Reporting assets without including digital asset funds implies violating the FinCEN rule. Considering that the FinCEN now has the authority to punish, it is not in the best interest of companies to go against them.

What Digital Currency Providers Must Do to Stay Complaint

At this point, the laws seem rather endless and excessive. Cryptocurrency regulations focus on ensuring compliance standards are maintained and standards across crypto-asset funds and digital currency providers. Besides the fact that the laws are already too much, most of these laws are against the fundamental principles of blockchain and crypto-asset funds. The idea behind blockchain and cryptocurrency is to empower users with the authority to decide who has access to their information. With the government demanding a database, that purpose may as well be defeated.

There are still many other concerns about cryptocurrency regulations. How does the government regulate platforms whose information the government cannot verify? The report claims that 47% of legislative decision-makers are uncomfortable with the automated authentication procedures of blockchain and cryptocurrencies. A further 21% do not trust the process of automated authentication.

At this point, digital currency providers are in a dilemma. They are currently facing a challenge of whether to act in accordance with the law or stick to the principles of blockchain and cryptocurrency. Here are what digital currency providers must do to stay complaint with the law.

Stay Up to Date with the Latest Development in Cryptocurrency Regulations

To be able to comply with the demands of the government and the law, you have to know what the law states first. The laws guarding cryptocurrency regulations are constantly evolving. The legislative arm of government will still make more laws and it will scrap some of the existing laws. You need to stay abreast with the legal proceedings. This involves knowing how they relate to the ownership and usage of crypto asset funds. There are various ways to stay updated about legal proceedings.

One of such is to subscribe to the newsletter of firms that give information about blockchain and cryptocurrency. Instead of having to keep tabs yourself, you get them to deliver the news to you instead. Another means to get information about cryptocurrency legality is join a blockchain or cryptocurrency community or forum. These forums or communities often feature enthusiasts and professionals in issues regarding cryptocurrency. They are one of the fastest means of getting news about cryptocurrency.

Ensure Stakeholders Stay Informed of Changes to Cryptocurrency Regulations

The saying goes that “what is good for the goose is good for the gander”. Knowing about the current cryptocurrency regulations are as important to your customers as they are to you. You should promptly inform them of the latest cryptocurrency development at all time. Giving your members or users prompt information will enable them to adjust faster and far more easily.

One way to inform users of the recent development on cryptocurrency is by sending them newsletters. Many companies into digital currencies often abuse the use of newsletters. They tend to spam the mailboxes of their users. It makes customers to either avoid reading their mails or report them as spam mails. When sending emails, ensure the mails are concise and straightforward. Furthermore, limit the frequency at which you send them mails.

Use the US Dollar as the Conversion Unit When Providing the Authorities with Information

There are many regulations regarding transactions, particularly the amount of money involved in those transactions. Digital currency providers often offer their services globally to a wide range of audiences. They are not limited to individuals in the US alone. This is why most cryptocurrency providers often use the cryptocurrency with which transactions occur as the value for judging the amount of money sent.

This is quite an issue because the US government works with US dollars. Its cryptocurrency regulations and laws talks about transaction limits using US dollars as the currency for measurements. To this effect, companies that provide cryptocurrency and other digital currencies should always calculate and record the value of such digital currency “at the time of the transaction.”

The quote is very important, as cryptocurrencies are very volatile. Quoting the value of transactions at the time of the transactions is the safest approach to cryptocurrency regulations. Making a mistake or ignoring this warning can be detrimental to providers of crypto asset funds and other digital currencies.

Properly Verify Their Users and Placing Restrictions in Line With the Law

With time, the law will strip cryptocurrency users off the level of anonymity they enjoy. Initially, uploading a scanned document was the major form of identity verification. To ensure fraud prevention and individuals with sinister motives do not use crypto asset funds in aiding terrorism, cryptocurrency providers are now required to properly identify users. As a result, users can no longer use scanned documents as a form of identity verification or photo ID verification.

In replacement, cryptocurrency providers will now demand selfie ID verification as a form of photo ID verification. Instead of posting already scanned pictures, users of crypto-asset funds will now have to take live sefies and upload them to the database. This is because selfie ID verifications are more accurate forms of biometric identity checks.

Identity and residential documents will now be scanned directly into the database. It is easier to falsify information when uploading an already scanned copy, compared to when you are scanning a live copy. With information of the personal and residential information collected by cryptocurrency providers, it will be easier to tender them to the FinCEN on demand.

Report Suspicious Cases in Accordance With the Law

There is a lot of outcry from individuals holding various crypto asset funds. Many of them are already calling the actions of the government an invasion of their privacy. It is also important that cryptocurrency providers do not escalate this issue. It is advisable that cryptocurrency providers work within the tenets of the NDAA when classifying suspicious activities.

Cryptocurrency providers may not be whistleblowers but should still work with the FinCEN. At this point in time, suspicious activities involve transactions of more than $1,000,000. Crypto regulations have previously avoided this powerful tool to assist investigators. Although further reforms may see it go below the stated amount. Cryptocurrency providers should report transactions involving cryptocurrencies worth more than $1,000,000 as at the time of the transaction. Prior transactions that were not worth up to $1,000,000 at the time of their transactions but are currently worth $1,000,000 do not fall into this category.

Cryptocurrency providers have obligations to their users. However, they also have to work with the law when serving their users. This is a necessary step in bringing crypto-asset funds into mainstream transactions and trading. Following the directives mentioned above is a good start. The directives above will ensure that crypto-asset funds and other digital currencies providers comply with the dictates of the law while also protecting their customers.

Follow our LinkedIn and Facebook pages for Anti-money laundering news and significant regulatory changes.

About IDMERIT

Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business. www.idmerit.com

The post Crypto Regulations 2021: What Digital Currency Providers Must Do To Stay Compliant appeared first on IDMERIT.

Know Your Customer (KYC), which can also be called Know Your Client, is mandatory for banks, money service providers, and cryptocurrency exchanges. KYC allows for a crypto exchange or money service provider (MSP) to identify risk levels of new customers and protect against fraud, theft, and otherwise suspicious or illicit activity. Both traditional stock exchanges such as the Dow Jones and nontraditional money exchanges such as in the crypto space are required to engage in Ongoing Monitoring of their customers. 

Risk Profiles (which are identified at the onset of a customer’s relationship with the bank or exchange) are monitored and updated at varying points in a customer’s relationship with the institution (one year, three years, or every time a significant transaction is completed). According to Dow Jones, “[c]ustomer profiles will change over time and firms must conduct ongoing monitoring of their business relationships to ensure risk profiles haven’t changed in a way that would expose the firm to non-compliance and reputational damage.” Know Your Customer (KYC) is standard practice for any compliance program and necessary to ensure clients are who they say they are.  

What is Blockchain?

Blockchain is a distributed ledger framework that cryptographically stores data on an open or private network. Blockchain is a technology that aims to transform the backend systems that most businesses run on. It aims to become a lower cost, more efficient way to share information and data between open and private networks.

Blockchain is useful as a tool in new Anti-money laundering solutions for fraud and risk departments across financial institutions. This is because the data that is stored on the framework is immutable. Within a blockchain system, data entries cannot be edited or modified.. Instead, they can only be appended after entering the system. This is particularly useful in AML transaction monitoring because it prevents criminals from trying to mask their transactions to prevent detection. The transactions will always be on the blockchain, no matter what a criminal does to attempt to modify them.

This will help banks save money in the long run. For example, Deutsche bank recently was fined over $700 million in 2017 because of accusations that it helped launder money out of Russia. Earlier this month, USB was fined over $5 billion by French regulators for money laundering and tax evasion. With blockchain technology in place, it would be more difficult for associates to evade the AML process and cause damage to a financial institution’s overall reputation.

An Anti-money laundering solution built on the blockchain could leverage the inherent qualities of the blockchain in order to identify and prevent illicit transactions. If the software used to monitor transactions is an AI with machine learning functionality, it could effectively run through strings of data to determine if money laundering activity is occurring. The reason this would work is because AI will be able to detect patterns in large volumes of data while adapting to changes in criminal activity over time with its machine learning capabilities.

Blockchain for AML Compliance

These tools would automate the transaction monitoring process and make it much more efficient and effective than current processes are today. Plus, if suspicious activity is detected, it could be highlighted, flagged and stopped for further investigation. All this activity would be immutably stored on the blockchain as well.

$1.4bn Stolen by Cyber Criminals as the Cryptocurrency Industry Faces New Round of Compliance/AML Failures

Major cryptocurrency exchanges are on the alert as 2020 brought another round of hacks, thefts, and decimating losses. Despite more stringent regulations being adopted across the European Union (EU), billions of dollars are being lost due to banks and exchanges failing to implement these new compliance hurdles.

EU Enforces Compliance as Fifth Anti-money laundering Directive Shakes Industry

As the EU’s Fifth Anti-money Laundering directive came into force on January 10, 2020, organizations operating in the crypto space are being challenged to update their compliance programs. Most notably, Bitcoin.com notes that the EU law will, “oblige digital asset exchanges as well as providers of crypto payment and custodian services to apply for licenses from the Federal Financial Supervisory Authority (Bafin).”   

The Fifth Directive states, “Recent terrorist attacks have brought to light emerging new trends, in particular regarding the way terrorist groups finance and conduct their operations. Certain modern technology services are becoming increasingly popular as alternative financial systems, whereas they remain outside the scope of Union law or benefit from exemptions from legal requirements, which might no longer be justified.” 

Major Risks For Non-Compliant Organizations Operating in the Crypto Space 

Risks Surrounding Client Anonymity: The Fifth Anti-money Laundering Directive’s 9th section points out that, “anonymity of virtual currencies allows their potential misuse for criminal purposes. The inclusion of providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, as a large part of the virtual currency environment will remain anonymous because users can also transact without such providers.” It goes on to note that in order to combat this loophole, “national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.” In the United States, financial institutions are required to identify and report suspicious activity reports (SAPs|. 

The Fifth Directive also discusses the idea of self-declaration and that FIUs, “should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.” Despite growing regulations, there still exist major challenges which have led to billions in scams, ponzi schemes, digital currency theft and extortion. 

PlusToken, WuToken, & KuCoin Just To Name a Few Highlight Need For KYC in Crypto Space

Boxmining, a leading technology and fintech asset media property and FinTech trends outlet states, “Plus Token” was a cryptocurrency Ponzi scheme disguised as a high-yield investment program. Platform administrators closed down the operation in June of 2019. Fraudsters abandoned the scheme by withdrawing over $3 Billion dollars in Cryptocurrencies (Bitcoin, Ethereum, and EOS) and leaving the message “sorry we have run“. This has led to an international manhunt for the platform administrators and creators of Plus Token. Plus token has been blamed for causing Bitcoin prices to fall in 2019 as stolen funds were sold via Bitcoin OTCs.” The need for proper KYC and transaction monitoring is especially apparent in the case of PlusToken. 

WuToken Hack: $281M Gone In An Instant

Cryptocurrency exchange KuCoin was instantly decimated with losses of over $281M in 2020. COO Insights reports that, “[o]n September 26, cryptocurrency exchange KuCoin issued a statement that it experienced a ‘security incident’. At that point, some USD 150 million in BTC (bitcoin), ERC-20 (ethereum-based tokens), and other cryptocurrencies were estimated to be stolen. 

Over the next couple of days, that amount had grown to USD 280 million, effectively making the KuCoin hack the third-largest crypto hack. Only Coincheck, which suffered a USD 534.8 million hack in 2018, and Mt. Gox, which lost USD 460 million in 2014 to another hack, were ahead in terms of loss.” 

Hacks and Ponzi schemes like these are rampant but organizations that build strong compliance programs, including AML risk profiling and KYC and Extended Due Diligence (EDD) processes will face a much less risky foray into the crypto space. 

About IDMERIT

Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the on-going development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business. www.idmerit.com

The post Theft, Ponzi Schemes, & KYC Challenges Rampant in the Crypto Space appeared first on IDMERIT.

Current Challenges for Anti-Money Laundering Solutions

The anti-money laundering solutions most banks and other financial institutions use are outdated and inadequate to meet today’s business needs, let alone tomorrow’s business needs. Current systems for transaction monitoring are unable to keep up with the pace and volume of transactions today in the digital age.

Digital financial transactions are fast, typically encrypted for greater security and often anonymous. Most of the time they do not require financial institutions as intermediaries. Because of this, current AML solutions are unable to investigate these types of transactions, leaving them vulnerable to abuse by cybercriminals. A good example is cryptocurrencies, which is used for money laundering activities by criminals because it remains mostly unregulated at this time.

Another important factor that complicates AML efforts is that currently they are highly individualistic in nature. Financial institutions all have their own processes in place to prevent money laundering. Countries also vary in their regulations against money laundering. A need for standardization is there in order to clarify the AML process, make it more efficient and ultimately automate it. Blockchain would create a framework that allows for top-level monitoring of whole transactions.

What is Blockchain

Blockchain is a distributed ledger framework that cryptographically stores data on an open or private network. Blockchain is a technology that aims to transform the backend systems that most businesses run on. It aims to become a lower cost, more efficient way to share information and data between open and private networks.

Blockchain is useful as a tool in new anti-money laundering solutions for fraud and risk departments across financial institutions. This is because the data that is stored on the framework is immutable. Within a blockchain system, data entries cannot be edited or modified.. Instead, they can only be appended after entering the system. This is particularly useful in AML transaction monitoring because it prevents criminals from trying to mask their transactions to prevent detection. The transactions will always be on the blockchain, no matter what a criminal does to attempt to modify them.

This will help banks save money in the long run. For example, Deutsche bank recently was fined over $700 million in 2017 because of accusations that it helped launder money out of Russia. Earlier this month, USB was fined over $5 billion by French regulators for money laundering and tax evasion. With blockchain technology in place, it would be more difficult for associates to evade the AML process and cause damage to a financial institution’s overall reputation.

Blockchain for AML Compliance

An anti-money laundering solution built on the blockchain could leverage the inherent qualities of the blockchain in order to identify and prevent illicit transactions. If the software used to monitor transactions is an AI with machine learning functionality, it could effectively run through strings of data to determine if money laundering activity is occurring. The reason this would work is that AI will be able to detect patterns in large volumes of data while adapting to changes in criminal activity over time with its machine learning capabilities.

These tools would automate the transaction monitoring process and make it much more efficient and effective than current processes are today. Plus, if suspicious activity is detected, it could be highlighted, flagged and stopped for further investigation. All this activity would be immutably stored on the blockchain as well.

Implications for AML Regulators

Blockchain technology and its distributed ledger should be incorporated into new fraud and risk compliance solutions for financial institutions across the globe. It creates opportunities for more transparency between financial institutions and regulators in the long run. By using the shared and immutable ledger blockchain offers, financial institutions would have an easier time reporting suspicious activity with regulators all over the world. This transparency would create new opportunities for financial institutions and regulators to work together. By pushing for standardization with the use of blockchain technology, they could simplify the creation of anti-money laundering solutions that truly work. Together, they could make a difference in limiting money laundering in the global economy.

The post Blockchain Technology to Simplify Anti-Money Laundering Solutions appeared first on IDMERIT.

After the Financial Crisis of 2008, Bitcoin presented a new money system that would not have the same shortcomings as regular currencies. This gave many people hope, and users of the currency began to pop up around the world.

Cryptocurrency Usage

Cryptocurrency has seen tremendous growth over the last 9 years. Fast forward to today and Bitcoin no longer remains the only one on the market. As of May 2018, over 1800 types exist on the blockchain. Over 500 exchanges exist as well, and that number continues to increase with each passing week.

Nevertheless, while momentum for cryptocurrency has risen over time, it has not seen worldwide adoption. People have shown that while cryptocurrency is inherently a great idea, they do not automatically trust it.

It goes back to the old saying, “respect is earned, not given.” People want to know that their cryptocurrency investments will be secure and keep their personally identifiable information (PII) safe under this new currency system. This will build trust for the technology among users and respect from regulating entities. Without these two objectives met, the worldwide adoption of a cryptocurrency system will continue to be scrutinized.

Cryptocurrency exchanges indeed have things to offer our current system of transactions and we can even see this sector becoming an integral part of global economies, but there is a lot of work that needs to be done. They are scrutinized every day, but even running legitimate exchanges does not automatically guarantee that consumers will adopt their system. Exchanges must understand the issues they face with consumers and regulators and use this knowledge to their advantage.

With this understanding, they will be able to build into their exchanges the trust and respect consumers desperately want. This will create lasting financial relationships with consumers.

Cryptocurrency Shortcomings for Users

One of the big problems with this market is that people do not understand how this investment strategy will keep their money safe. There are several problems that have the potential to severely limit the adoption of cryptocurrency over time, including:

• Huge amounts of currency that are at stake
• High gains and even higher price crashes
• Equally treacherous cryptocurrency exchanges where crypto is bought, sold and stored
• Exchanges are magnets for cyber fraud and technological flaws

Many cryptocurrency investors may not be optimally verified, validated and securely onboarded when entering into relationships with crypto exchanges. Cryptocurrency experience “flash crashes” where it suddenly plummet in value. Exchanges are not required to have circuit breakers in place when wild price swings take place. This prevents trading from halting when it should. This outcome can cause stress and panic within the cryptosystem which can lead to huge gains—and huge loses—in currency.

Since 2011, there have been at least three dozen heists of cryptocurrency exchanges. Many times, the hacked exchanges have been forced to shut down their services. This means investors in these exchanges have often been left empty-handed and wondering whether they will receive any compensation for their loss. Such events cause a lack of trust and a push for more regulation in the cryptocurrency space.

Banks Do Not Trust Crypto Exchanges

Because the space is so volatile, many banks are wary of doing business with cryptocurrency exchanges. Banks find them skeptical.  JPMorgan even called Bitcoin “a fraud” and predicted it would “blow up” in 2017.

In March 2017, Wells Fargo refused to process wire transfers for Bitfinex, a cryptocurrency exchange. This left Bitfinex customers unable to transfer US dollar out of their accounts, leaving many of them disgruntled. A Bitfinex representative stated at the time that dealing with banks “is a constant and ongoing challenge. Citizens and businesses are treated like criminals when they are not.”

Banks are concerned that cryptocurrency exchanges do not perform thorough know your customer (KYC) and anti-money laundering (AML) checks to verify their customers prior to onboarding them. They fear that there are criminal activities and sanctions violations taking place in their exchanges. Because of this, they limit their interaction with exchanges since they do not want to be liable for any illegal activity occurring within cryptocurrency exchanges they do business with.

A Call for Regulation

Governments have been watching cryptocurrency closely since its creation. With its growth and continued use over time, they know there is value in the existence of the cryptosystem. What governments have struggled with is how to regulate this space and do so in a way that offers the same protections to users as government-backed currencies—fiat money.

Nevertheless, regulation in the cryptocurrency space is on the rise. As demonstrated by the European Union earlier this year, rules have been put in place stating that cryptocurrency exchanges will be required to verify all users from traders to suppliers of cryptocurrency wallets. This means anyone who provides blockchain services should register. It is likely that other countries will follow suit and cryptocurrency regulation will continue to increase since many governments believe that cryptocurrency exchanges have a duty to know who their customers are and ensure they are not using the technology to fund criminal activities.

What Can Exchanges Do Now

Cryptocurrency exchanges need to begin self-regulating to keep up with upcoming regulation. This will allow them the opportunity to become an integral part of the global, financial system.

Cryptocurrency regulation would benefit exchanges and users in a variety of different ways. It would increase the flow of institutional capital into cryptocurrency markets by building trust between the two systems. It would also strengthen corporate governance in cryptocurrency companies. Cryptocurrency exchanges would be legitimate entities and be subject to the same rights and benefits as other legal institutions. In theory, cryptocurrency consumers should feel more secure knowing their interests are protected by regulators.

Plus, cryptocurrency consumers would experience more transaction freedom if regulations were put into place. Currently, many exchanges put limits on the amount of cryptocurrency that can be transferred to fiat money in their unverified accounts. If all cryptocurrency exchanges were regulated, these types of hindrances to consumers would not exist.

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