Overview of cryptocurrency regulation and its impact on your business [Part 3/3]
This article is the third installment of a 3-part series on cryptocurrency regulation and its impact on businesses in the industry.
This series comes at a pivotal moment for the crypto-sector as over 200 jurisdictions who support the FATF’s standards will have to transpose its anti-money laundering (AML) and counter financing of terrorism (CFT) requirements into local law.
The common regulatory environments and the key challenges for legislators and businesses have been discussed in parts 1 and 2 of this series.
This final section addresses broad practices that can help crypto-firms run successful compliance programmes regardless of their regulatory environment.
Understanding your Risk Exposure
The Professional Services team, Elliptic’s consulting arm, insists that crypto service providers must be able to demonstrate their thoughtfulness in understanding risk. It all starts off by identifying one's business risk exposure. This is a very subjective process. As detailed by the FATF, a business’s risk profile will be most strongly affected by
‘the types of services, products, or transactions involved; customer risk; geographical factors; and type(s) of [virtual asset] exchanged, among other factors’.
Regardless of the size of the business, the best way to show a thorough thought process is to document decisions as much as possible, such as keeping track of minutes from meetings discussing compliance actions taken and the key drivers in the decision-making process.
Our Professional Services team notes that, as with financial institutions, regulators understand the subjective nature of risk and it is commonly accepted that businesses will not be able to mitigate all risks. Nonetheless, Elliptic’s team has identified some common misconceptions in crypto-compliance that can lead to undue risk and expose businesses to strict sanctions enforcement.
Businesses who are new to the financial industry may see compliance as a burden and might hire a compliance analyst or buy a blockchain monitoring tool to tick a checkbox. In reality risks and regulations are constantly changing which is why AML and CFT procedures must also be well-thought-out and iterative.
To learn more, Elliptic’s sanctions report provides a detailed guide to sanctions compliance. Further, our Professional Services team has experience in assisting businesses to develop or review their compliance programme to achieve operational preparedness. This ranges from implementing monitoring tweaks to programme overhauls which achieve risk mitigation, practicality, and efficiency.
Leveraging Data Intelligence
The regulatory frameworks and compliance practices mentioned above all depend on leveraging blockchain intelligence data and tools. For this reason, Elliptic has acted as a trusted partner to numerous crypto businesses, law enforcement agencies and financial institutions since 2013. Being the oldest data intelligence firm in the industry, Elliptic has the most robust data set.
Our tools leverage data of the highest quality in order to reduce false positives and help businesses manage their resources efficiently. As jurisdictions have and will take various approaches to regulation and as businesses constantly have to adapt their risk appetite, Elliptic offers customisable risk rules in its AML tool. As previously explained, we believe that a tailored approach to risk management should be the basis of any compliance programme.
On top of this, businesses should equip themselves with the best data possible to carry out their transaction monitoring and customer due diligence. At Elliptic we are constantly expanding our data set and improving our collection techniques.
The data uploaded in our tools has to pass a number of controls to ensure high accuracy to avoid time-wasting false positives. We also maintain records of identified addresses and evidence linked to a specific incident to ensure our customers can comply with confidence.
Elliptic believes in collaboration to fight financial crime, for this reason, customers are encouraged to share suspicious addresses or transactions with us by providing evidence. Again, all of this information is carefully analysed by our Data team. Its work enables us to keep up with trends in illicit activity on blockchains by interacting directly with malicious actors.
Our Customer Success team collaborates with our intelligence analysts to guarantee our customers see a continuous delivery of value. This ensures that Elliptic’s clients stay updated on developments in crypto-compliance, recommended use of tools and data as well as bespoke advisory sessions when major fraudulent or regulatory events arise.
What’s Next?
Our research shows that the crypto-industry is at a pivotal time for regulation as the true outreach of cryptocurrencies is becoming apparent. Nonetheless, businesses that are not prepared to comply with emerging requirements should expect a rise in enforcement actions.
It has been argued that this sector benefits greatly from operational preparedness and proactively engaging with self-regulation which builds trust in cryptocurrencies.
In the long run, businesses without appropriate AML/CFT measures in place may risk becoming considered as lower tier by consumers and traditional financial institutions, threatening their long-term viability.
As the industry matures our recommendation is to keep a close eye on current frameworks and monitor institutional discussions. It is clear that an internationally coherent and harmonised regulatory approach would benefit both businesses and consumers.
With its ever-growing team and data intelligence solutions Elliptic is a key enabler of the crypto-industry and empowers businesses to become compliant while building a safe community.
As regulators shape their compliance requirements Elliptic continues to support businesses in implementing practical changes to their compliance programmes. Make sure to connect with Elliptic to benefit from our latest analysis and the key practical learnings from legislation.
This article is for general information purposes only. Whilst we endeavour to ensure that the information in this article is correct, no warranty, expressed or implied, is given as to its accuracy and we do not accept any liability for error or omission.
