Banks and cryptos: How to fulfill AML/CTF requirements?




Date: June 10th 2021

Published on: Global News, Regulation


AML, AML/CFT, Banks, CFT, crypto AML, Crypto Compliance, Cryptocurrency, Cryptoregulation, Risk assessment, RiskAML,

Key takeaways:

  • Cryptocurrency usage is increasing which leads to a growing demand for crypto services.
  • Financial institutions are moving to crypto services to satisfy this growing need.
  • They should satisfy crypto AML/CTF requirements and mitigate risks from their crypto exposure.

With the recent expansion of cryptocurrencies and cryptocurrency usage, more and more players wish to enter the market to offer crypto-related services, amongst which are banks.

Banks are gradually showing interest in crypto on one hand due to the market expansion and on the second hand because it is easier for them to offer crypto-related services thanks to evolving regulations. The most recent example of this would be Nebraska signing a law allowing financial institutions in the state such as banks to offer crypto custody services.

Worldwide banks seem to be willing to move to crypto. For instance, the Swiss investment bank UBS is reportedly looking to offer crypto investment alternatives to its wealthy clients. In Germany, Deutsche Bank, a multinational providing banking products, is working on the “Deutsche Bank Digital Asset Custody prototype” to offer crypto custody for their institutional clients according to a report from We Economics Forum. Across the Atlantic, US Bank, the fifth-largest bank in the US revealed details on its planned cryptocurrency offerings such as providing custody to its clients.

Although some banks are planning to offer crypto-related services, others have indirect exposure to cryptocurrencies through their crypto clients. Nevertheless, banks must comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

AML/CTF requirements for banks

Financial institutions and banks around the world are already subject to AML/CTF regulation and KYC for fiat currency to mitigate the related risks but they also have to mitigate crypto risks from their crypto exposure.

With international regulations preventing money laundering and terrorism financing such as the FATF recommendations or Europe’s 6th AMLD, financial institutions must adopt a risk-based approach on AML/CTF and transaction monitoring. Banks should thus integrate crypto transaction monitoring into their AML/CTF processes to mitigate risks related to cryptocurrencies. Besides, more and more crypto regulations are being issued by local governments, 2 recent examples being South Korea and Ireland.

Today, several cryptocurrency compliance solutions are available in the market to help banks comply with relevant crypto AML/CTF regulations and mitigate the risks that stem from the cryptocurrencies.

How can Scorechain help banks mitigate crypto-related risks?

Scorechain Blockchain Analytics solution covers major blockchains and allows its users to verify crypto funds and monitor transactions.

  • Identifying high-risk VASPs

Scorechain Entity Directory identifies 700+ virtual asset service providers (VASPs) and assesses their risk level according to their compliance policies such as their level of KYC or if they conduct P2P or fiat transactions. Moreover, the Entity Directory gives information about the jurisdictions of VASPs and if they are licensed by any governmental body.

  • Assessing the risk level

Scorechain users can rely on Scorechain risk scoring formula and risk indicators to assess the level of risk associated with a wallet or a transaction. Risk scoring ranges from 1, the riskiest, to 100 the safest. Risk indicators identify if a wallet is linked to risky patterns such as OFAC sanction lists, darkweb, hack, or scam activity.

  • Improving AML/CTF policies

The solution is customizable to implement the user’s internal AML policies and add another layer to crypto risk mitigation. For example, the user can customize the risk scoring and create its own groups and labels. Furthermore, Scorechain users can set alerts and be notified promptly thanks to a real-time notification system. Users also have the possibility to generate know-your-transaction (KYT) and know-your-address (KYA) reports that can be used to file reports to authorities for instance.

Today, it is fundamental for companies and institutions dealing with cryptocurrencies to comply with the relevant AML/CTF regulation. Scorechain provides its users with all the necessary tools to mitigate ML/TF risks. Feel free to contact us to learn more about how Scorechain solution can help you in your compliance journey:

About Scorechain

Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance since 2015, the Luxembourgish company serves worldwide customers in 36 different countries with more than 200 licenses established, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms and some LEAs.

Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software can de-anonymize the Blockchain data and connect with sanction lists to provide a risk scoring on digital assets transactions, addresses and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.