A Guide to Anti-Money Laundering for Crypto Firms
The crypto industry is facing a whirlwind of regulatory change. In our recent compliance breakfast briefing with Elliptic in London, ComplyAdvantage’s Head of Financial Crime, Livia Benisty, Elliptic’s David Carlisle, Denisse Rudich, an independent AML/CFT expert and Marcus Peckham, VP for Financial Crime Risk at Barclays, discussed how industry stakeholders can develop successful compliance operations amid regulatory flux in the UK and beyond.
“It’s likely that the recent regulatory guidance for the crypto industry is only just beginning; there’s already discussions on whether domestic regulation should go above international guidance and it will be essential for members to be prepared”- Livia Benisty, Head Of Financial Crime, ComplyAdvantage
The briefing, held immediately after the UK’s HM Treasury launched its official consultation on 5AMLD, was timely and met with strong participation by compliance offices from the crypto and banking sectors.
Here we outline three key observations from the discussion.
#1: Crypto Companies Need to Future-Proof Their Compliance Operations
HM Treasury’s consultation paper suggests that the UK may pursue a broad regulatory framework that goes beyond the requirements of 5AMLD and applies to a wide range of crypto platforms and activities. As the consultation notes, “The UK will not tolerate the use of crypto assets in illicit activity, and the government is keen to fully address money-laundering and terrorist financing risks they pose through regulation.”
Panelists and attendees agreed that regulation in the UK and beyond is likely to continue broadening in scope over time, and that clarity will remain hard to come by.
“Probably the single biggest challenge we see compliance officers in the crypto industry face is the fact that regulation is changing almost as soon as it’s been adopted,” David Carlisle, Head of Community, Elliptic.
The lesson is clear: Crypto exchanges, ICO issuers, brokers and other platforms shouldn’t wait for regulatory clarity to emerge before taking action to implement AML systems. Having AML transaction monitoring tools and other financial crime controls in place well before new regulation comes into effect future-proofs their operations to ensure success and resiliency amid regulatory change.
#2: Compliance Officers Need to Think Proactively About Financial Crime Risks
Regulators in the UK are thinking carefully about the risks in the crypto space. HM Treasury’s 5AMLD consultation states that “the risk profile of crypto assets is rapidly changing, which reflects the fast moving nature of the sector itself.”
In addition to implementing the right tools for regulatory compliance, compliance officers in both the crypto and banking sectors need to be on the front foot when it comes to identifying their exposure to risks and typologies – whether it’s cybercrime, terrorism, sanctions evasion or other forms of criminal activity.
This means conducting a thorough risk assessment of products and services they offer that may pose a threat of exposure to criminal activity in cryptocurrencies, and designing controls and processes to combat those specific risks before they materialize.
#3: Transparency and Partnership Are Critical
Regulation of the crypto space presents complex technical issues that create challenges for financial institutions, crypto businesses and regulators alike. HM Treasury’s consultation raises controversial questions, such as whether the producers of open-source software should have to implement AML requirements, that will require extensive examination and debate.
As a result, it is important for all stakeholders – from crypto exchanges to regulators to banks – to share information, perspectives, and experiences in an open and transparent manner to ensure regulation is crafted in a way that protects against risks without stifling innovation.
For more crypto reading, please find our analysis of crypto regulations around the world here. We help over 250 organizations across the crypto sector, including Coinbase and TrustToken stay ahead of rapidly changing regulatory developments. To find out more click here
Originally published May 3, 2019, updated November 17, 2021
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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