As the crypto industry grows and expands its user base across financial entities, funds, and institutions, the need for clear and strict regulatory practices arises. To maintain stability, credibility, and endurance of the crypto sector, FATF (Financial Action Task Force) issued anti-money laundering rules. Whether it is a virtual asset services provider (VASP), a market maker trading platform, a wallet provider, or a crypto exchange, they need to integrate AML checking for their clients to comply with existing regulations in the jurisdiction they work.
Why is Crypto AML Compliance Important?
In the digital era, crypto AML compliance is crucial. With cryptocurrencies posing high risks for financial crimes due to their decentralized and often anonymous nature, adhering to AML measures is essential. It helps build trust and ensure the sustainable growth of the crypto industry.
Anti-money laundering procedures for crypto-related businesses include:
- customer due diligence (CDD), including AML wallet check;
- transaction monitoring;
- reporting suspicious activities.
The goal is to detect and assess risks, track customer transactions for unusual activity (unusually big trading volumes or large cash withdrawals, etc.), and promptly report to the relevant bodies if something raises concerns.
Often AML includes the use of AI (artificial intelligence) and ML (machine learning) technologies that help quickly identify patterns and anomalies in user behavior and transactions among huge databases.
Elements of AML Verification
Specific AML requirements may vary depending on the jurisdiction, however, the general rules are as follows:
- CDD – crypto businesses, VASPs, and exchanges must implement know-your-customer processes, including identity verification for their new clients while onboarding and tracking their behavior.
- Monitoring. Crypto companies and exchanges need to track their client transactions and promptly detect and report suspicious activities.
- Recording. Crypto businesses need to record their clients’ identities and operations with digital assets, investigate unusual activities, and make their conclusions available to regulators.
Adherence to AML compliance is crucial for preventing financial crimes and protecting both the exchange and its users. Detecting and stopping money laundering activities builds trust and maintains a positive reputation. Moreover, AML for crypto is not a choice but a regulatory requirement. Non-compliance can lead to serious consequences, including fines, sanctions, and license revocation. Strong AML practices also attract institutional investors with strict due diligence requirements.
Wrapping up, AML standards are essential for the stability and sustainability of the crypto industry. By reducing risks associated with financial crimes, exchanges contribute to a healthy and thriving crypto ecosystem.
