Algorand and AML

Looking from the regulation perspective, one of the major roadblocks for the growth of blockchain protocols and cryptocurrencies in the global regulated market has been focused on anti-money laundering (AML) compliance regulations. AML has become a required feature for protocols and related assets who want a leadership position in the market and the capability to operate in regulated markets globally.

The guidance before the regulation

Last year Financial Action Task Force (FATF), the global AML watchdog, updated its guidance for nations to stipulate that crypto companies must store and disclose information about senders and receivers, above a certain transaction threshold. The guidance clearly stated that automated transaction monitoring and customer risk scoring are essential components of an effective anti-money laundering program. Initially this was met with trepidation when first unveiled. Many in the industry were concerned it could spell the end for cryptocurrency transactions by eroding user privacy and making the compliance burden on exchanges and other companies too much to bear.

The Global Stance: How the countries reacted?

Countries all over the globe are trying to come to terms with cryptocurrencies being present in the financial ecosystem for the long haul and to prevent the national currencies from being fazed out, are accepting and demanding that cryptocurrency holders follow norms and regulations as per the regulations set in their respective countries. The skepticism has gradually been replaced with acceptance (in most cases) and movements towards how the crypto markets can be regulated and the FATF Travel Rule guidance was a good stepping stone. The question for both the crypto companies as well as the countries was would they want to comply with the FATF Travel Rule guidance. The verdict has been clear; countries such as Singapore, US, Germany, Netherlands and others adopted the travel rule into local law and stipulated a threshold above which the transaction reporting would be done to comply with the FATF Rule.

Reactions of Crypto companies

With the Travel Rule being enacted into local laws by multiple jurisdictions, the crypto industry, tokens and exchanges alike have shown their willingness to adapt to the new regulatory landscape. This will of course weed out any projects which cannot comply with simple regulations but on the plus side the strong AML rules have made crypto attractive to a growing institutional audience.

With the dominant use case for most cryptocurrencies as well as crypto exchanges being cross-border remittances and a means of financial transaction, everyone has been open to the idea of complying with global and local fiscal regulations. They have done so by partnering with companies which specialize in providing such services such as Elliptic, Chainanalysis, CipherTrace, etc.

The Algorand Collaboration

To be better placed moving forward, when the regulations come into effect globally, and not if, Algorand has linked up with Chainanalysis to help engrain regulatory compliance into its blockchain ecosystem. Chainanalysis will provide a know-your-transaction (KYT) solution, allowing its foundation to monitor large volumes of on-chain activity for the native ALGO token and report any suspicious transactions to the authorities. Chainanalysis provides the transaction monitoring software required to hold a license in Singapore and comply with regulatory requirements in other FATF jurisdictions. Though not a comprehensive solution to Travel Rule compliance, the KYT solution will help the Algorand Foundation meet some of the requirements, including picking out transactions that trigger the Travel Rule, as well as identifying relevant senders and receivers.

Concluding Insights

The new integration will enable the foundation to fulfill their regulatory obligations globally to report suspicious activity. It will not only enhance trust and security aspects for Algorand but will also show proactiveness on part of the Algorand team to be ready for regulations which may not be too far away.