Imagine waking up to headlines about a once-thriving bank or business that has now filed for bankruptcy due to illicit transactions and subsequent regulatory fines. While this may seem like a nightmare scenario, it’s a reality for many companies that fail to implement effective risk management, and transaction and cryptocurrency monitoring controls. 

Danske Bank, a leading Nordic financial institution, was hit with a penalty of $2.1 billion by regulators in both Denmark and the US due to activities conducted at its Estonian branch, which included inadequate transaction monitoring that facilitated illicit financial flows. 

Similarly, Glencore, a financial institution with branches in Switzerland and the US, was ordered by the Commodity Futures Trading Commission (CFTC) in the US to pay $1.186 billion for engaging in manipulative conduct in the physical and derivatives oil markets, which also involved inadequate transaction monitoring. 

Cryptocurrency businesses are similarly vulnerable to the same types of risks as traditional banks, but with the added complexity of decentralized and anonymous transactions. Robinhood Markets Inc.’s cryptocurrency arm was fined $30 million by the New York State Department of Financial Services (NYDFS)  after the brokerage was accused of violating anti-money-laundering (AML) and cybersecurity rules. 

In total, the crypto-related fine values accounted for $193 million in 2022 according to a report by Fenergo, a SaaS company.

Cryptocurrency transactions can be conducted without intermediaries or regulation in many parts of the world, making them a ripe target for money laundering, fraud and other illicit activities. As a result, it’s crucial for companies in the crypto space to implement effective cryptocurrency monitoring solutions that can detect and prevent illicit activity, reduce their risks and ensure compliance with regulations.

What is Cryptocurrency Monitoring?

Similar to fiat transaction monitoring, cryptocurrency monitoring is a key risk control to identify suspicious cryptocurrency transactions and mitigate financial crime.

Cryptocurrency transactions are different from their traditional counterparts, however. They are easy to make, fast and global. For instance, if you wanted to send money to someone in another country using a traditional banking system, you might have to wait several days for the transaction to be processed, and you may have to pay high fees for the transfer.

In contrast, with cryptocurrencies such as Bitcoin, you can send money instantly to anyone anywhere in the world with just a few clicks. The transaction fees are usually much lower than those charged by traditional banks, and there are no intermediaries involved.

For example, let’s say you want to send $100 to a friend in another country. Using a traditional banking system, it might take several days to complete the transfer, and you might have to pay a fee of $10 or more. However, with Bitcoin, you can send the same amount of money instantly, and the transaction fee would likely be less than a dollar.

Incorporating cryptocurrency monitoring into your institution requires a thorough understanding of the technology behind cryptocurrencies and the regulatory frameworks surrounding them. 

Regulatory Requirements

Companies operating in the cryptocurrency space must comply with a range of regulations to prevent illicit activities, ensure compliance with local laws and protect their reputation. The following are some of the key regulatory requirements for effective cryptocurrency monitoring:

1. Anti-Money Laundering (AML) Regulations: AML regulations require companies to verify the identity of their customers and monitor transactions for suspicious activity. This includes identifying and reporting suspicious transactions, conducting customer due diligence and implementing risk-based controls to prevent money laundering.
2. Know Your Customer (KYC) Regulations: KYC regulations require companies to collect and verify information about their customers, including their identity and source of funds. This helps prevent money laundering and terrorism financing by ensuring that companies have a clear understanding of who they are doing business with
3. Financial Action Task Force (FATF) Recommendations: The FATF is an intergovernmental organization that sets global standards for AML and counter-terrorism financing (CTF). The FATF has issued a series of recommendations for effective cryptocurrency monitoring, including requiring companies to register with regulatory authorities, implementing risk-based controls, and sharing information with law enforcement.

Want to learn more about compliance requirements and best practices for cryptocurrency at your firm? Download our crypto compliance playbook to learn more. 

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Effective Cryptocurrency Monitoring Strategy

As you study the requirements, you’ll discover that incorporating cryptocurrency monitoring controls into your business comes with challenges. 

Millions of crypto transactions occur every day. Manual or inadequate cryptocurrency monitoring programs leave your business exposed to different types of risk. 

Here are the top five steps companies can take for effective cryptocurrency monitoring:

1. Develop Policies and Procedures: Companies should establish clear policies and procedures for cryptocurrency monitoring, outlining the roles and responsibilities of employees and the steps to be taken in case of suspicious activ
2. Implement Risk-Based Controls: Companies should implement risk-based controls that are tailored to their specific business activities and the requirements in their jurisdiction. This could include setting transaction limits and identifying and monitoring high-risk customers.
3. Continuous Screening and Reporting: by investigating high-risk transactions and reporting them to authorities before they are approved, the business reduces the likelihood of litigation and reputational risk.
4. Train Employees: Companies should train employees on the risks associated with cryptocurrency transactions and the procedures for monitoring and reporting suspicious activity. This will help ensure that employees are equipped to identify and respond to potential threats.
5. Blockchain Analytics Tools: banks and financial service providers average more than 100,000 transactions per day. Blockchain analytics solutions streamline and automate cryptocurrency monitoring processes. They offer real-time monitoring, risk scoring and accurate and actionable SARs, facilitating the reporting requirements. 

No tool is more simple to implement and use than BitRank Verified^TM, which integrates with your existing systems and can be operable in less than a day. 

In conclusion, robust cryptocurrency monitoring is a critical cog for managing risk from digital assets and meeting daily compliance requirements. By selecting the right solution and diligently implementing it, companies can navigate the complex landscape of the cryptocurrency ecosystem and maintain their competitive edge in an increasingly regulated industry.

Learn a how cryptocurrency monitoring solution saves you from fines of up to $30M