BEFORE YOU GO...
Check how Shufti Pro can verify your customers within secondsRequest Demo
Transaction processes today are launching innovative possibilities for users across the economic topography. Financial institutions can monitor the trail and timing of millions of transaction processes simultaneously. Transaction monitoring permits businesses to identify the origin and terminal of funds and the connection of those funds to financial crimes.
Transaction monitoring is indispensable in the occurring fight against financial crime by recognizing and halting the flow of unlawful transactions. Some key reasons for FIs to have transaction monitoring webbing are to remain compliant and keep away from regulatory violations, to detect financial crime before they cause harm, and to better acknowledge customer services.
An Overview of Currencies – From Fiat to Crypto
Both fiat and cryptocurrency are effective forms of money that can be interchanged and have significant financial value. Fiat and cryptocurrency are dissimilar in ways that fiduciary currency is issued by the government such as the U.S. dollar, whereas cryptocurrency is a digital asset based on the decentralized blockchain. Fiat currency issuance requires a mediator while cryptocurrency depends on localization to authorize doubtful transactions.
Today government-issued fiat money has lost its constitutional value and is replaced by cryptocurrency. The broadcasting of blockchain automation now serves as a modernized update to the meaning of money worldwide. Assembled on digital financial currencies like BTC (bitcoin), and ETH (Ethereum), cryptocurrencies are not supervised by the government and provide valuable chances for finances globally. To attain a noticeable value, all forms of money either fiat or crypto must have the following requirements:
Medium of Exchange: All currencies have acceptable payment values. Both sides in a business deal must agree on the perception of that value. Since the beginning of 2009 when cryptocurrency was first introduced, many businesses were uncertain regarding its form of payment. However, its rapid growth and popularity made its acceptance possible both on an individual as well as an institutional value.
Store of Value: All forms of money tend to proceed as a store of utility. For example, when a $100 invoice is issued to a customer, the company must be assured enough that the $100 has the same worth thirty days out. If there is no value to money, there is no use for money as the possibility of inflation is too high.
Unit of Account: Money must act as a unit of account to charge financial transactions by persuading the value of multiple products and services in association with each other. For instance, a $20 hat is less valuable than a $500 mattress.
Cryptocurrency Transaction Monitoring Regulations
As for all transaction monitoring systems, it is necessary to detect and alarm suspicious agreements and inform compliance regulators about these threats. Cryptocurrency being a practicable transaction mode for people, crypto businesses should evolve and invest in innovative transaction monitoring systems to figure out these new categories of transactions.
The FinCen (Financial Crimes Enforcement Network), at first renovated its guidance for fiat currency only but with the increased use of cryptocurrency in 2013, FinCen issued guidance for those who exchange virtual currencies. Cryptocurrency businesses are in need to mitigate the possible risks of trading by employing the finest AML software tools that are mainly focused on virtual currency. For instance, BitMEX in late 2020 failed to regulate transaction monitoring and maintain a genuine AML compliance scheme according to CFTF orders. As a result of which BitMEX received lawbreaker charges from the US department of justice.
Cryptocurrency transaction monitoring can be regulated by constant upgradation of transaction monitoring tools, by conducting employee training workshops to educate them properly to configure illegal activities in crypto transactions, and by following the dynamic policies and methods that cryptocurrency institutions are dealing with.
Challenges faced by Financial Institutions
Being an important constituent of any AML program, all financial institutions have transaction monitoring systems under the bank secrecy act to fight money laundering. From 2020 to 201, cryptocurrency transaction volume grew to 567%. Companies with poor or ineffective transaction monitoring ideas face some challenges and can be subjected to penalties for inflation in monetary regulations.
Anonymity: When left unmonitored, cryptocurrency transactions can permit customers to dodge quality monitoring measures for the sake of illegal funds.
False-Positive: In the majority of cases, conventional monitoring systems get it wrong. This inaccuracy comes with a high cost to the organizations and a total waste of time. To avoid false positives there is a dire need of incorporating the latest transaction monitoring programs with high rate accuracy.
Non-Flexible Rules: Unbending rules in action to monitor transaction errors is another leading hurdle to financial institutions. Easy-to-use rules must be adapted to digital transaction systems to reduce financial organizations’ risks.
Fraud System Thresholds: It is not impossible to cheat inflexible rule-based transaction monitoring systems as they serve as a risk factor where traditional, outmoded, AML systems are troublesome. As a result of which a lot of high-grade suspicious activities go unnoticed.
Data Hinders AI Deployment: Artificial intelligence is supposed to be an integral part of AML programs, so the data must be checked for all the infirmities carefully and any signs of deception must be encountered immediately.
Cryptocurrency Transaction Monitoring Adapting AML
With digital currencies becoming more mainstream, there is now a greater need of incorporating anti-money laundering policies. A sound AML/CFT system for crypto organizations should comprehend dubious acts by observing cases and related risk management. In November 2021, a total of 103 dominions were pinpointed to apply AML/CFT constitutions to cryptocurrencies. FinCEN is the central financial guard that has applied KYC (Know Your Customer) and AML checks on crypto money help providers. This tendency will continue to rise as the FATF (Financial Action Task Force), carry on the petition of its standards to upgrading technologies.
In order to avoid all the possible ways that a criminal can use to launder money, virtual asset services should verify the identity of their customers. By adopting AML screening users’ personal information can be protected against criminal attacks. Other key regulations for crypto transaction monitoring include customer due diligence, screening accuracy, and the use of updated technology.
As cryptocurrency acquisition today is not coming slow, it brings with it high risks of money laundering. Financial firms and banks must invest in equitable AML solutions to detect fraud in financial operations before it does any damage. Shufti Pro’s AML screening solution is all set to make digital currency transactions crime-free with access to 1700+ global watchlists.
Want to learn more about transaction monitoring optimization of cryptocurrency with AML practices?
Want to learn more about transaction monitoring services for financial institutions?