Use Case: How QCP Capital uses the AML Tools from Uppsala Security to help meet Singapore’s PSA Regulatory Requirements

QCP Capital is a leading Asian digital asset proprietary trading firm based in Singapore. They are also one of the earliest companies in Singapore to operate a flow trading desk for both Over-the-Counter (OTC) spot and derivative trading.

Uppsala Security provides organizations with Sentinel Protocol, an award-winning suite of advanced tools and services for Crypto Anti Money Laundering (AML)/ Counter Terrorism Financing (CTF), Know-Your-Customer (KYC) Intelligence, Transaction Monitoring/Tracking, and Regulatory Compliance Analytics which enables organizations to protect their crypto assets from malicious attacks and scams while meeting regulatory compliance standards. Supporting the framework is a team of experienced cyber security professionals with decades of successful experience providing cybersecurity solutions.

Key Needs & Requirements of QCP Capital

The Payment Services Act (PSA) is a regulatory framework that came into play in January 2020. It effectively regulated Payment Services Providers (PSP) and mitigated Regulatory Uncertainties. This effectively aided in the maintenance of consumer safeguards and spurred the stable growth of Singapore’s FinTech Sector. In 2021, further amendments were made to tighten the regulatory reins of the PSA.

Being a Cryptocurrency (Digital Payment Tokens- “DPT”) Proprietary Trading firm, QCP is essentially a PSP and will need to submit to the PSA regulatory framework. The PSA is in itself compliant to the global standards of the “Travel Rule” as prescribed by the Financial Action Task Force (FATF).

Under such circumstances, QCP has prioritized the following needs:

• Screening and Monitoring of both new and historical transactions
• Enriched Transaction Data including, e.g. risk labels and scores, and score variance over time
• Visualization of digital asset transactions for AML/CTF
• Risk assessment of both transactions and wallet addresses
• Know-Your-Wallet (KYW) profiling of counterparties to inform CDD/EDD processes

Business Goal

Singapore’s financial sector is heavily regulated and often subjected to rigorous testing to ensure proper AML/CTF standards. As Digital Payment Tokens start to play a bigger role in the global economy, additional emphasis and pressure has been placed upon companies like QCP, who are going through the PSA licensing process to set certain standards in its AML/CTF procedures.

As an exempt DPT service provider undergoing PSA licensing, QCP prides itself on achieving the same high standards of AML/CTF mitigation found in traditional financial institutions. In addition to that, QCP goes the extra mile to implement DPT-specific AML/CTF risk management procedures, such as KYW processes.

Some of key risks associated with DPT transactions include the speed and the relative anonymity of each transaction. This means that task specific and easy to use risk management tools are quintessential in the regulatory compliance of DPT trading activities.

CATV and its Capabilities

The Uppsala Security tool called Crypto Analysis Transaction Visualization (CATV) is a forensic tool providing crypto transaction flows, both upstream and downstream of a selected user’s wallet. With CATV, a user can track, analyze, monitor, and visualize crypto transactions graphically displaying the flow of tokens and the type of wallets those tokens interact with. CATV enables its user to look for suspicious transaction behavior, such as that of tumbling, mixing, and/or interaction with a wallet address that has been blacklisted or classified as a suspicious wallet in Uppsala Security’s Threat Intelligence Database (TRDB). Based on these capabilities, the CATV tool can enable its users to avoid inadvertently making transactions with known cybercriminals and thus unwittingly participate in Money Laundering or Terrorist Financing, as well as to quickly investigate past incidents in detail. Queries entered by a user run as a batch process that continuously analyses any crypto addresses that have been submitted by users working with CATV’s GUI or API interface.

CARA and its Capabilities

The Uppsala Security tool known as Crypto Analysis Risk Assessment (CARA) is an intuitive to use solution that generates a Risk Score for a user selected crypto address by applying Machine Learning algorithms that leverage knowledge learned from behaviors exhibited by known malicious wallets and normal safe wallets. Users with an active annual subscription can access CARA on an on-demand basis and enter queries about a specific wallet address. Those queries run as a batch process which continuously analyses any crypto addresses that have been submitted using the system’s GUI or its API interface. The tool is also compliant with the Risk-Based Approach (RBA), as recommended by the Financial Action Task Force (FATF).

Product Testing and Evaluation

To meet PSA regulatory requirements, QCP Capital’s compliance team was focused on adopting solutions that generate the most meaningful information for conducting the due diligence and transaction monitoring processes as required by Singapore’s PSA. After stress testing various products, QCP Capital concluded that CATV and CARA complemented each other for generating a comprehensive counterparty risk analysis which includes screening, analysis, monitoring and reporting. This enables them to effectively satisfy the PSA requirements set upon by MAS.

“It is not particularly useful if a blockchain AML product is only capable of providing information about the more obvious kinds of illicit transaction activity, i.e. if a wallet address is a known ‘scam wallet’, or has been associated with drug-dealing activity, or is on some law enforcement database already. Obviously such information informs KYW profiling, but it is also just as — if not more — important for blockchain AML/CFT processes to be able to identify the relative — historical and dynamic — risks associated with wallet addresses from their not-so-obvious transaction activities, i.e. we want and need to be able to holistically assess the risks of a wallet based on both its actual transaction history, but also on its patterns, behaviours, and interactions with other wallets. We looked at many other service providers and QCP is unequivocal in its belief that the Uppsala Security suite of products is unparalleled in this regard. Our view is that the Uppsala Security proprietary algorithm and methodology of risk-scoring should be a commonly-adopted by industry — and certainly law enforcement.”

Jin Lim, Co-Founder, QCP Capital

The Decision Criteria

While testing the CATV & CARA tools as well as many other similar products on the market, QCP Capital concluded that the capabilities of both tools significantly surpassed those of competitive products. The following variables or characteristics were key to their decision-making process:

• Rich data of historical transactions enabled a seamless screening process
• A more sophisticated risk-based assessment compared to competitive solutions
• Demonstrated capabilities to comply with existing Regulatory Compliance requirements and firm senior management commitment to comply with future regulatory requirements
• Intuitive transaction visualization, a capability that is very useful for AML/CTF
• Ready access to granular incident information stored within the Threat Intelligence Database (TRDB)

“Uppsala Security has transformed the way we conduct KYW — and in fact, also created a rich avenue for more in-depth due diligence alongside more traditional KYC. Moreover, our close partnership with the Uppsala Security team has been highly fulfilling as they are always receptive to our ideas and for further collaboration to improve their products’ capabilities. We asked for certain features to be tweaked and/or developed to allow us to use CARA and CATV, not just for KYW onboarding, but also for ongoing transaction monitoring, and with the Uppsala team’s support, our monitoring processes have become that much more robust. CARA and CATV reports are now a core component of due diligence reports and onboarding, and are always key attachments in any reports to law enforcement.”

Joshua Kong, Head of Compliance, QCP Capital

Key Benefits realized by QCP Capital by utilizing CATV & CARA

• Significantly enhanced screening, analysis, monitoring, and investigation capabilities for AML/CTF of cryptocurrency based transactions
• Comparatively CATV & CARA generated the best due diligence counterparty analysis as compared to the rest of their market competitors
• The Compliance Team has access to information that is much more detailed and objective as compared to the other available market options
• Responsive and collaborative support by Uppsala Security on both the technical and conceptual levels enabled QCP Capital to implement important process enhancements on the go and significantly increase business productivity alongside refining AML screening processes for DPTs

QCP Capital is headquartered in Singapore. You can follow QCP Capital on Telegram, Twitter, LinkedIn and Medium.

Uppsala Security, headquartered in Singapore, has branch offices in Seoul, South Korea and Tokyo, Japan. You can follow Uppsala Security on Telegram, LinkedIn, Twitter, Facebook and Medium.