Navigating AML Compliance Changes in the Cryptocurrency Industry for 2023

June 21, 2023
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Changes Businesses Should Know and Adapt in Cryptocurrency AML Compliance this Year

Note: this is a follow up piece related to our 2020 article regarding AML compliance 

This year saw numerous changes, both subtle and overt, to cryptocurrency AML compliance. Business owners and entrepreneurs in the cryptocurrency space should be reviewing and updating their AML Program, as well as its associated policies and procedures, regularly. While there was already a global trend in regulating the sector, it amplified in 2022, with policymakers worldwide recognizing the need for crypto regulations. As 2023 is likely set to hold significant updates in terms of regulation, here are three things to keep in mind for Crypto AML compliance in 2023.

1. Greater Scrutiny Over Stablecoins: Navigating the Evolving Regulatory Landscape

The crash of Terra Luna stablecoin in 2022 sent shockwaves through the crypto industry, causing widespread losses for investors. As a result, regulators are now taking a closer look at stablecoins and considering new compliance requirements for issuers. Additionally, VASPs (Virtual Asset Service Providers) may face stricter monitoring measures for transactions involving stablecoins. Correspondingly, with the potential for more regulatory changes on the horizon, it’s essential for crypto investors and industry professionals to stay informed and prepared. Keep up with the latest news and developments to navigate the evolving world of stablecoin regulation.

2. Risks via Super-Apps: The Growing Threat of Crypto Scams on Social Media Platforms

AML Compliance ChangesLast year, there was a record high in social media cyber threats and crypto-based crime. Several incidents highlighted the growing use of social media platforms to promote and conduct crypto and NFT (Non-Fungible Token) scams. Such fraudulent activities are not limited to popular platforms such as Instagram, Twitter, and Facebook but are also prevalent on chat platforms like Discord and Telegram. In brief, the growing number and typologies of crypto scams, and the pseudonymous nature of crypto assets, lead VASPs and security agencies to face significant challenges in detecting, reporting, and investigating such criminal activities on blockchains.

3. Detecting and Combating New Money Laundering Patterns: The Importance of Advanced Blockchain Analytics Solutions

Cryptocurrency and blockchain technology have existed for more than ten years. As the market evolves, bad actors have devised various techniques for converting illegal crypto assets into legitimate funds, utilizing methods such as mixing services, peel chains, and exchanges. However, these criminals are now turning to more advanced strategies and technologies, including decentralized exchange (DEX) transactions, cross-chain bridges, and non-fungible tokens (NFTs), in order to launder cryptocurrency and increase their anonymity within the blockchain ecosystem. In order to identify and counteract these emerging patterns of crypto crime and money laundering facilitation, VASPs (Virtual Asset Service Providers) must employ sophisticated blockchain analytics tools.

DeFi and AML Compliance: The US Treasury Department’s Perspective

In April, the United States Treasury Department released its risk assessment report on DeFi (Decentralized Finance). The report emphasizes the belief that even genuinely decentralized services, or those with varying degrees of decentralization, should implement anti-money laundering (AML) compliance measures under the Bank Secrecy Act (BSA). This report serves as a clear indication that the Treasury is advocating for the integration of AML compliance within the DeFi sector.

DeFi has experienced rapid growth in recent years, offering a wide range of financial services such as lending, borrowing, and trading without the need for traditional financial intermediaries like banks. This growth has attracted significant attention from investors, resulting in an influx of capital and innovation within the space. The decentralized nature of DeFi, however, has also raised concerns among regulators about the potential for money laundering, terrorist financing, and other illicit activities.

The Inevitable Expansion of AML Regulation

As the DeFi market continues to expand, it is reasonable to expect that AML regulations will evolve to encompass this emerging sector. Regulators worldwide are becoming increasingly aware of the potential risks associated with DeFi, prompting them to consider implementing new regulatory measures. This is evident in the Treasury Department’s risk assessment report, which urges developers to incorporate AML compliance into their DeFi platforms and services.

Developers of DeFi services should prepare for the possibility of increased regulatory scrutiny and the need to comply with AML regulations. By proactively incorporating compliance measures, they can ensure the long-term success and stability of their platforms while also mitigating potential risks associated with money laundering and other criminal activities.

As the DeFi market grows, so too does the likelihood of expanded AML regulations. It is essential for developers and stakeholders within the DeFi ecosystem to stay informed about regulatory changes and take the necessary steps to integrate AML compliance measures into their platforms and services. By doing so, they can help foster a more secure and compliant DeFi industry for years to come.

Related: Official U.S. Treasury Press Release on DeFi risk assessment

Proactive Compliance Monitoring, the Role of Independent Third-Party Reviews

This evolving regulatory landscape leaves business owners and operators in the crypto industry in a tough spot. Ensuring compliance with AML regulations can be a complex and time-consuming process, particularly as new rules and requirements continue to emerge. So, how can businesses effectively test and monitor their compliance, and make the right decisions as soon as possible?

Firstly, it’s essential for businesses to stay informed about the latest changes in regulations and to be proactive in updating their compliance policies and procedures. This includes staying up-to-date with relevant news, attending industry conferences, and participating in educational webinars. By maintaining a clear understanding of the current regulatory environment, businesses can be better prepared to adapt their compliance programs as needed.

Video: What is AML compliance?

Secondly, businesses should consider conducting regular internal audits and assessments to identify any gaps or weaknesses in their compliance efforts. This can help them proactively address potential issues before they escalate into more significant problems or regulatory violations. Additionally, businesses should provide ongoing AML training for their employees to ensure they are knowledgeable about the latest compliance requirements and best practices.

Lastly, when it comes to testing and monitoring AML compliance, nothing beats an annual independent third-party review. Engaging a reputable external auditor or consultant to conduct a thorough examination of your company’s compliance program can provide valuable insights and recommendations for improvement. This not only helps to ensure your business is meeting its regulatory obligations but can also demonstrate to regulators that you are taking your AML responsibilities seriously, potentially mitigating the risk of fines or sanctions.

Navigating the ever-changing world of cryptocurrency AML compliance requires businesses to be proactive, informed, and diligent. By staying up-to-date with the latest regulatory developments, conducting regular internal audits, and engaging in annual independent third-party reviews, businesses can better position themselves to comply with AML regulations and maintain a strong reputation in the industry.

Key Takeaways: Staying Informed and Prepared for Future AML Regulations

In conclusion, there are several things that organizations involved in the cryptocurrency industry should consider as they prepare for future AML regulations in 2023. Stay informed about developments in the regulatory landscape: The crypto industry is rapidly evolving. It is essential to stay up-to-date with the latest regulatory developments to ensure compliance with relevant requirements. If you have compliance questions of any kind, we are available for a free consultation.

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