Basic things you need to know about compliance in crypto

Regulations in crypto – isn’t that objecting to the whole idea?

Finance is about trust, ultimately – said Gary Gensler, the US SEC (Securities and Exchange Commission) boss, in his Financial Times interview. $2tn industry is too big to exist outside the public policy framework – added. That statement underlined the necessity for crypto regulations, against which there was strong opposition. The attitude started slowly but steadily changing since then. Crypto showed its fraud face too many times in too many cases – Mt. Gox, OneCoin, Luna, or FTX, to name a few.

Crypto adoption goes up & crypto crime goes down?

On top of that, the crypto platforms became the cybercrime community playground, with the key trends in cryptocurrency-based crime being money laundering, NFT-related, ransomware, malware, stolen funds, scams, terrorism financing, and darknet markets. The crime typology share characteristics with the conventional. There are adjustments based on blockchain technology risks. Crypto money laundering, for example, covers layering, dusting, money mules, or cross-chain transactions.

Surprisingly the crypto playground started changing. The 2022 Crypto Crime Report by Chainalysis shows cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the year, up from $7.8 billion in 2020, reaching its All-Time-High in value. At the same time, the report proves that cryptocurrency usage is growing faster than ever before. The total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020. The data shows that the increase in illicit transactions volume was just 79%, reaching its All-Time Low in all cryptocurrency activity shares. The growth of legitimate cryptocurrency usage outpaces criminal ones. The conclusion could not be more reassuring.

Current best practices for crypto compliance

The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, recommends for cryptocurrency service provides a risk-based approach for AML (Anti-Money Laundering) and CFT (Counter Financing of Terrorism) compliance. The crypto provider must perform individual risk assessments, collect and verify information about their customers and build risk profiles to help with future compliance decisions.

In simple words, cryptocurrency compliance follows AML cryptocurrency regulations to safeguard investors.

Crypto compliance is an ongoing implementation of processes and tools to eliminate AML & CFT. The scope will vary, depending on the jurisdiction, and include:

• KYC (Know Your Customer) and proper identity verification both during onboarding and during transactions guarantees traceability for crypto-based crime activities
• KYB (Know Your Business)
• KYT (Know Your Transaction)
• Transaction monitoring of cryptocurrency assets
• Virtual analysis or filing reports with regulators

In light of AML, the crypto service provider can evaluate people, wallets, and transactions and report suspicious activity. The processes develop trust between users and improve the credibility of the crypto environment.

Upcoming regulations

The current compliance requirements are not enough. Both the crypto industry and the governing bodies push for regulations, seeing in them a positive enhancement for the industry. The European Council approved MiCA (Markets in Crypto-Assets regulation) in October this year. One of the goals is to regulate the risks related to crypto assets. MiCA should enter into force in Q4 2024.

The crypto playground will keep changing.