What are the best practices for crypto asset regulation compliance?


Deciphering the complexities of crypto assets and adhering to Anti-Money Laundering (AML) regulations can seem like an intricate task.

In a recent webinar by RegTech firm Alessa, the firm discussed what you need to know to help ensure compliance when it comes to crypto assets.

As the popularity of cryptocurrencies surges, it’s crucial to enhance your skills in identifying and reporting suspicious activities involving these digital assets. Alessa’s expert panel delved into significant regulations and shares practical advice, including recognizing risky wallets and transactions, particularly those that are mixed or tumbled. A key question arises: when will enforcement for Non-Fungible Token (NFT) wash trades become a central discussion point?

Mike Carter of FTI Consulting emphasised that market surveillance in the crypto realm, including monitoring wash trading and market manipulation, is more complex than traditional AML monitoring due to the volume of transactions.

He believes that the U.S. Securities and Exchange Commission (SEC) has rightly identified certain behaviors in the crypto market akin to broker-dealer activities. This includes not only NFTs but also broader schemes like pump-and-dump and wash trades.

Virtual Asset Service Providers (VASPs) or crypto financial institutions often find themselves in a challenging position. While they may not be obligated to monitor, detect, and prevent market manipulation, many choose to incorporate robust third-party tools for oversight.

Carter predicts an increase in enforcement actions against developers who engage in market manipulation, including wash trades, pump-and-dump schemes, and the distribution of misleading information to inflate the value of tokens or NFTs. He expects more significant DOJ-level enforcement on the criminal side and suggests that U.S. exchanges need regulations mandating market surveillance similar to that required of broker-dealers.

When considering hiring for crypto compliance, Brian Eustice of Homeland Security Investigations highlighted the importance of character and interest in digital assets over industry knowledge.

He suggests that an investigative background and analytical skills, common in AML compliance professionals, are vital. Mike adds that organizational skills and the ability to write clear, concise, fact-based reports are crucial, especially for writing Suspicious Activity Reports (SARs).

To combat market manipulation and wash trading, Carter recommends implementing third-party surveillance and market surveillance rules. Ensuring accurate data throughput and appropriate rules is crucial to balance between catching potential market manipulation activities and avoiding too many false positives. He also stresses the importance of consumer education in the digital asset space, acknowledging that there’s always risk involved in digital assets.

Want to watch the webinar? Click here.

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