Cryptocurrency Market and Financial Crimes: How to Handle Transaction Monitoring

  • Richard Marley
  • March 16, 2022
  • 7 minutes read
  • 7369

The adoption of cryptocurrencies by both individuals and businesses has exploded in the last 12 months. Institutions are now delivering cryptocurrency-related services to their clients in greater numbers than ever before. Furthermore, user engagement on cryptocurrency exchanges and platforms is also growing immensely than it has ever been. While the regulatory landscape for cryptocurrencies in different jurisdictions is far from finalized or guaranteed, one thing is obvious: institutions engaging in cryptocurrency will need to monitor their transactions and file suspicious activity reports (SARs) if unusual activity is identified. 

A robust transaction monitoring solution can help businesses to overcome the risk of financial crimes associated with digital crypto money transactions. Innovative solutions have been developed to address the unique compliance problems that cryptocurrencies pose, particularly for transaction monitoring. One of the industry’s inherent risks is that no central authority can oversee or govern how blockchains operate. Businesses that conduct cryptocurrency transactions need to be aware of and comply with current cryptocurrency transaction monitoring requirements, as well as be on the lookout for potential new regulations.

Cryptocurrency Landscape and Rising Crimes

Cryptocurrencies are also known as virtual assets have emerged with new opportunities for consumers throughout the financial landscape, but they’re also upending how regulators and financial service providers deal with illicit risks like money laundering and terrorism funding.

The potential threat that cryptocurrencies offer to the financial system is significant. According to studies, it was found that while total transaction volume across all cryptocurrencies grew by 567% to $15.8 trillion in 2021, illicit transactions increased by just 79%. To counteract this disruptive effect, regulators around the world have enacted new compliance rules to ensure that cryptocurrency service providers, as well as any institution dealing with cryptocurrency, can detect and prevent threats, and need to report authorities about emerging criminal methodologies.

The transaction monitoring process, which is a basis of effective Anti-Money Laundering (AML) protocol, requires organizations to examine their customers’ transactional behavior in order to detect attempts to perpetrate crimes such as money laundering. Because criminals may be able to conceal their identities and shift funds swiftly between accounts by taking advantage of the anonymity and speed of cryptocurrency services, transaction monitoring becomes both more vital and more difficult. In addition to this, financial and cryptocurrency service providers must understand how to modify and improve their AML transaction monitoring systems and measures to effectively deal with the rising risk of money laundering through cryptocurrencies and ensure that they remain compliant with the laws and standards in a shifting regulatory landscape to solve this challenge.