2022 was not a good year for global anti-money laundering. Fines rose by more than half on the previous year, topping £4bn, according to recent data. And if it wasn’t a good year for financial institutions across the board, crypto had an absolute nightmare. Across crypto, financial penalties were up 90 per cent, the industry shed a huge $1trn of market cap across just a few months, and the year was topped off by FTX’s Christmas collapse and the chaos that followed.
With all of this going on, you’d be forgiven for asking whether crypto as a whole was on the chopping block.
It’s not. Despite all the issues, crypto’s revolutionary promise remains. Two-thirds of central banks plan to issue their own digital currencies in the next decade. But something needs to be done, or the worst could be yet to come for the crypto industry.
Follow the money, it’s what crime does
As the fines for the likes of Santander show, the money laundering show rages on across the financial services industry, but crypto has a particularly severe problem.
The lack of regulatory scrutiny that crypto exchanges and firms operate under, has allowed for an easily accessible, but difficult to track, playground for fraudsters and money launderers – allowing anonymity for criminals. Sophisticated cryptocurrency scams are being used to swindle people out of their life savings and pensions, leaving them with no hope for a refund.
More worryingly, as the FTX debacle shows, fraud and dodgy money can infiltrate even those organizations that seem the most credible to those on the outside. Despite making redundancies, Coinbase remains a respected leading exchange. Yet it was still fined $50 million at the beginning of this month over allegations that it broke AML laws and left itself open to serious criminal conduct.
If the UK is serious about creating a crypto asset superpower, and committed to innovation and creating the new Silicon Valley as Jeremy Hunt laid out in his economic plans, the first port of call has to be weaving in regulation to ensure that crypto doesn’t in fact end up as a what if.
Whose job is it to fix?
The recent Economic Crime and Corporate Transparency Bill was a step in the right direction. The bill is putting plans in place to protect the country’s financial system from abuse and drive fraudulent money out of the UK. In the crypto space, the creation of the specific cryptoasset civil forfeiture power will give the regulator more power to seize cryptoassets, ensuring that these can’t be used for criminal or terrorist purposes.
But alongside regulation, firms need to play their part too. Crypto firms will have to improve their due diligence; companies will not only have to take more care over who is using their sites, but also need to undertake Source of Funds checks to follow the money trail. For this to happen, though, they need expert help.
Luckily there is help at hand, and is so often the case, technology holds the key to enabling firms to do better, without draining firms of precious time and money. Quicker source of funds technology allows companies to collate and analyze a customer’s increasingly diverse and complex sources of financial data and present it to an institution in an easy-to-read format, enabling them to make quicker decisions.
Ultimately, these wider AML and Source of Funds technologies leave companies confident that their AML compliance is being dealt with in the background and lets them focus on the value-add activities they’re most interested in, all while reducing their risk.
If crypto can get on top of its fraudulent activity, and can work alongside incoming regulation, crypto’s revolutionary promise as a new payment method can be achieved, and crypto can get rid of the ghosts that continue to haunt it.