Even as crypto firms bolster compliance, better share information, more regulation coming to virtual value: key takeaways from the ACFCS Boston conference – CFCS | Association of Certified Financial Crime Specialists

Panel Three: Crypto Compliance After the FATF Guidance – What it Means for Crypto Exchanges, Banks and Others

Last June the Financial Action Task Force (FATF) issued its long-awaited guidance on the regulation of virtual assets, including cryptocurrencies, ushering in a new era for all stakeholders in the crypto space.

The move is also causing a massive schism in the virtual asset sector into those with AML programs inline with international standards and those that don’t – or simply chose not to operate any more.  

For regulators, the guidance creates new pressure to ensure that crypto firms are in full compliance with their fincrime mandates.

For both crypto exchanges and banks, the guidance has raised new compliance challenges, including compliance with the requirement that customer and transaction data must move from crypto exchange to crypto exchange and to banks – the nexus between the virtual and physical worlds.

That requirement, colloquially dubbed the “Travel Rule” and the push for greater visibility into crypto transactions has caused a ruckus in the already raucous and privacy-focused crypto sector, with some saying the obligation is impossible to meet and others offering potentially costly solutions in dense and didactic whitepapers.

In this session, attendees heard from regulators and crypto compliance experts on how they’re responding to the guidance and what comes next.

The general consensus: more pressure and expectations are incoming, requiring exchanges to band together to find out how to balance transactional transparency, user privacy, regulatory scrutiny and law enforcement inquiries.

One question that immediately grabbed the audience’s attention: For banks considering virtual asset relationships, are there good crypto firms and bad crypto firms?

The answer was yes, according to panelists.

But that teases out a further line of inquiry: How do you tell the difference and weed out bad actors?

To get the right answer, try asking better questions, according to Joseph Ciccolo, CAMS, AMLCA, CFE, founder of BitAML, Steve Ryan, the CCO at CipherTrace, and Adam Goldstein, Deputy Chief Compliance Officer and Program Governance Head for Gemini Trust.

Such queries could include: 

  • Is the crypto firm you are banking registered with FinCEN?
  • Does that crypto firm send and respond to Patriot Act 314(b) requests?
  • Is the crypto exchange engaging in high risk activity, such as ties to darknet markets or tumbling sites or transacting in higher risk jurisdictions, like Russia?

If the answers to some or all of these questions are yes, you might have a bad crypto firm on your hands.

Moreover, the pressure on crypto to firms to better root out bad apples, and not be judged as a “bad” crypto firm, is only going to increase this year.

More crypto regulation is likely in the US in the coming months, but for both exchanges and financial institutions, that’s a good thing.

Compliance has become a competitive advantage for the crypto world, according to Stephen R. with CipherTrace and Adam Goldstein from Gemini, with moderation and additional context from Joseph Ciccolo, CAMS, AMLCA, CFE.

“It doesn’t matter whether you are in crypto or traditional banking, the same rules apply [in terms of financial crime compliance requirements]. These are the rules in the books, and everyone has to follow the rules.” Ciccolo said.

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