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Money laundering headaches in crypto markets

A new Refinitiv Expert Talk takes an in-depth look at the relationship between flourishing crypto markets and rising anti-money laundering (AML) challenges, before moving on to explore how technology can help market participants manage crime and compliance in the dynamic virtual asset world.

  1. As crypto markets continue to grow, the threat of anti-money laundering is posing a number of challenges. A Refinitiv Expert Talk explored the nature of these challenges and proposed potential solutions.
  2. The growth in crypto virtual assets has led to regulators across the globe introducing measures to counter the threat of financial crime.
  3. To guard against these threats, the talk looked at how market players could take steps to improve compliance practices, including screening and digital onboarding.

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The post-pandemic boom in online engagement has, unsurprisingly, led to exponential growth in crypto and other virtual asset markets.

Unfortunately, this growth has attracted the attention of financial criminals and has led to a similar boom in criminal activity – including fraud and money laundering – within the sector.

Virtual asset market participants find themselves trying to manage and mitigate these financial crime threats against a highly dynamic backdrop defined by rapid and ongoing evolution within the virtual space.

Refinitiv 2022 Cryptic challenges expert talk

On top of this, the landscape is complicated by certain grey areas where definitions have yet to be finalised.

For example, non-fungible tokens (NFTs) – digital assets that exist on a blockchain, including images, music or text – have not yet been fully classified, leading to a lack of clarity. If they do indeed qualify as virtual assets, then any platform where they are traded could be viewed as a virtual asset service provider (VASP), with some significant regulatory implications.

What is happening in the regulatory sphere?

Regulators across the globe have been focusing their attention on the crypto and virtual asset space. Internationally, the Financial Action Task Force (FATF) has led the charge, releasing updated guidance around virtual assets and providers in 2021.

Worth noting is the so-called Travel Rule, which draws market players such as VASPs and cryptocurrency exchanges into the anti-money laundering and counter-financing of terrorism (AML/CFT) regulatory net.

Specifically, the rule applies to cryptocurrency transfers over a specified threshold.

In the U.S., FinCEN is closely watching the virtual asset space, and the Office of Foreign Assets Control (OFAC) has specifically targeted both individuals and entities within the cryptocurrency ecosystem. Moreover, a Bank Secrecy Act (BSA) rule implements Travel Rule requirements.

European regulators are also eyeing this space, with the Crypto Travel Rule mandated in the European Union in mid-2021 and the European Commission calling for consistency with the FATF Travel Rule.

Data and technology

Given this landscape, crypto market players need to build resilient compliance frameworks in order to mitigate growing risk and remain on the right side of a developing regulatory curve.

Access to robust data and leading-edge technology can significantly help overwhelmed compliance teams, enabling them to save time, optimally allocate scarce resources and more accurately pinpoint potentially illicit activity.

Refinitiv Expert Talk on anti-money laundering and crypto

Our Expert Talk specifically looks at two elements of a best-practice response to compliance challenges:

  • Screening, a vital first step in any AML compliance framework:
    Extensive risk intelligence data, combined with advanced screening software, has the potential to accelerate know your customer (KYC) due diligence processes; reduce the errors that often plague manual systems; and save costs.
  • Digital onboarding, which has turned old-school onboarding on its head:
    Rather than relying on the collation of hard copy documentation, new digital initiatives now offer new customers positive and engaging ways to prove their identities, submit documents online, and open new accounts with ease. Digital onboarding is good for FIs too, offering speedier processes, lower costs and reduced client drop-off rates.

The break-neck speed at which virtual asset markets are growing in the wake of COVID-19 leaves very little time for participants to keep abreast of developments in both financial crime threats and regulatory changes, but some key takeaways include:

  • Online crime is growing, especially in crypto markets
  • Regulators are closely watching the space and the regulatory landscape is highly dynamic
  • Building a holistic compliance framework that leverages data and technology is key

If crypto players can concentrate on this third point and make smart choices as they build their compliance structures, they will give themselves the best chance to stay compliant, while ensuring that they consistently offer engaging digital experiences that speak directly to new and existing customers in the digital age.

Read the full Expert Talk.


Has online crime/fraud increased during the pandemic?

The post-pandemic boom in online engagement has, this growth has attracted the attention of financial criminals and has led to a similar boom in criminal activity.