Crypto's laundering gaps fuel its reputation problem
There is a reputation problem among cryptocurrency providers. In some respects, that reputation is warranted with a lack of transparency around who is issuing crypto, who is buying and selling, and their sources of funding.
We recently carried out a poll of 400 industry practitioners which found that only 8% of respondents considered existing KYC / AML checks in cryptocurrency markets to be effective, with 40% describing them as ineffective.
However, with the recent transposition of the 5th AML Directive into U.K. law, all that is set to change.
The cryptocurrency market is exploding and regulators globally are stepping up their approach by introducing legislative requirements and AML obligations.
To appease regulators, challenger banks looking to service crypto businesses can implement effective AML controls and systems to apply the same risk-based approach to onboarding a crypto entity as a mainstream bank would for a more traditional customer.
Technology that can enable challenger banks to identify and understand complex entity ownership structures and associations with potential politically exposed persons (PEPs) and other high-risk individuals will instill confidence in the regulators that the risk that comes with cryptocurrencies is being dealt with effectively.
This will streamline the process of obtaining banking licences and open up the market for opportunities.