There is no doubt that cryptocurrency is booming. On January 7th, the value of the cryptocurrency market swelled to over one trillion US dollars. On February 19th, the value of Bitcoin, the most popular form of cryptocurrency, exceeded one trillion dollars all on its own. Bitcoin was actually created in 2009, but in 2021, there is no doubt that cryptocurrency’s slow transition into the mainstream is complete.
For the uninitiated, cryptocurrency is a digital asset that is exchanged between users through blockchain technology, known as cryptology (hence the name.) Since it is a fully digital form of currency, it belongs to no country and can be traded equally all across the globe. Unlike credit card transactions, cryptocurrency has very small fees and is incredibly easy to transfer.
Cryptocurrency is also safe – depending on the point of view. Cryptocurrency transactions can be entirely anonymous and secure based on its blockchain technology and its encryption process.
On the other hand, it is not only hard to get a transaction returned directly to the issuer’s address but crypto exchanges also carry money laundering risks. This presents obvious compliance questions: how do financial sectors and institutions serving this industry have to protect themselves from money laundering schemes?
Since cryptocurrency is a decentralized, global currency, there has so far been no standardized approach to regulating it. Individual countries have been taking their own individual approaches. The Financial Action Task Force (FATF), an intergovernmental organization, “the global money laundering and terrorist financing watchdog”, has been monitoring the developments in the crypto systems. Recently some countries have started to regulate the virtual asset sector, however it’s not enough yet.
In the United States, the Treasury Department’s Financial Crimes Enforcement Network (known as FinCEN) and the Federal Reserve are reviewing rules to consider virtual currencies as “money” under the Bank Secrecy Act. Additionally, FinCEN’s “travel rule”, which mandates reporting of transactions involving financial institutions, would be updated and $250 international transactions would fall under the amended rule. It doesn’t stop here, there are other sets of rules coming.
Meanwhile, businesses (and individuals) involved with cryptocurrency systems, must be aware of crypto exchanges’ key risks, red flags and protection measures. A well designed compliance program plays a pivotal role in this scenario. Know Your Customer compliance, sanctions screening and transaction monitoring are some of the crucial activities included in a program.
For businesses (and individuals) to stay compliant with cryptocurrency regulatory requirements and to understand the vulnerabilities specific to cryptocurrencies transactions, companies should consider implementing procedures to address the risks and to navigate such a tricky and fascinating environment.
For help mitigating the risks inherent with cryptocurrency and protecting your business, contact Prae Venire today. No matter your situation, we have solutions catered to each client’s specific needs.