TL;DR Key takeaways
TL;DR
- Holistic crypto compliance requires complementing AML and KYC with KYT as global regulations expand. FinchTrade implements this model using Scorechain to support its institutional OTC operations.
- Scorechain provides real time AI and machine learning monitoring, de anonymizes blockchain data, links to sanction lists, and assigns risk scores to assets, transactions, addresses, and entities.
- Scoring patterns vary and can trigger false positives, so effective KYT requires proper configuration and learning the artificial intelligence underpinning it through experience to interpret results.
- VASPs operating across jurisdictions and facing the Travel Rule should augment AML and KYC with KYT to monitor cross border transactions and apply a risk based compliance approach.
The adoption of cryptocurrencies worldwide goes with tremendous speed as businesses and customers have realized the advantages that digital assets brought to traditional finance. The new ways of storing and transferring value that fintech innovators implement, attract more and more attention from regulators and policymakers. And this is not for nothing as the value of illicit crypto transactions increased simultaneously with the growth of the crypto economy.
Crypto Compliance
In the crypto economy transactions are verified and maintained by blockchain. Decentralized transactions are the topic for increased compliance, which has prompted many regulatory bodies and policymakers to develop regulations around crypto compliance. AML regulations aim, as they do for conventional finance, to prevent money laundering and to deter illicit activities, thus to make transactions secure and regulated.
There are several compliance requirements to be applied to all virtual asset service providers (VASP). Although FATF (Financial Action Task Force) has recommendations and guidelines about implementing anti-money laundering and combating the financing of terrorism AML/CFT programs for all of the regulators worldwide, requirements can vary by with region and regulator. FATF advises AML procedures that primarily include KYC, know-your-business (KYB), and know-your-transactions (KYT).
One of the most attractive features of cryptocurrency — instant cross-border transactions, opens an unlimited worldwide market for VASPs. They are dealing with other institutions, incorporated and regulated in different jurisdictions, and it becomes an essential challenge for them to comply with the regulatory framework. More than 100 countries around the world already have crypto regulation in place or are on the stage of implementation. More will follow, as global regulation of virtual assets expands.
Scorechain’s Solutions
Crypto financial institutions of all kinds seek to have more clarity in the regulations and most of them find it difficult to keep up with the rapidly changing environment. Fortunately, there are companies like Scorechain, specialized in crypto-tracking compliance tools since 2015. Luxembourg based fintech provides AML & Compliance solutions for cryptocurrencies. It helps cryptocurrency companies, OTC trading desks, ICOs, private banks, audit firms, and custodians with a powerful and unique scoring system. Scorechain’s products allow traditional finance players and cryptocurrency companies to apply a risk-based approach for this new class of assets and fulfill all new regulation requirements.
FinchTrade’s case
FinchTrade AG, founded and regulated in Switzerland, provides deep liquidity of digital assets to institutional clients. It operates on the OTC (Over-the-Counter) market executing even huge trade sizes without the negative impacts of trading via centralized exchanges. Cross-border transactions and their pace are the prominent advantages of digital assets, facilitating VASPs’ customers to perform big volumes of trading transactions 24/7.
Blockchain-based crypto transactions require increased attention in the framework of AML/CFT compliance. Regulators around the world implement Crypto Travel Rule, recommended by FATF. Therefore, KYT (Know-Your-Transaction) measures come into play which allow businesses to monitor transactions to assess the risks of the transactions in terms of potential connection to financial crimes, sanctions or illegal activities.
The KYT process helps to trace and screen transactions for a defined scope of illicit activities. Real-time monitoring performed by artificial intelligence and machine learning determines the risks in connection to the legitimacy of activity by analyzing transaction data. The KYT process allows us to inspect insights of transactions to concentrate on the transfer patterns and understand the reasons behind the potential risk of a transaction to better assess the risk of fraud.
Patterns that scoring software relies on can differ and false-positive results on transactions may vary. It is very important to have the data analysis right configured to interpret results. And the only way to build a robust compliance framework is to learn the artificial intelligence that underlies KYT. Experience and practice play the central role in this process, that’s why FinchTrade had no doubt about what solution to choose — Scorechain with its brilliant background, comprehensive and user-friendly tools, smooth onboarding process, and attentive support.
“Hand in hand with AML-Risk Intelligence cryptocurrencies can make the world a better place”
Lesya Margris, COO at FinchTrad
About Scorechain“We’re always happy to help companies close the loop on their compliance needs. Technology comes in and helps compliance teams have a better set of tools to make sure they can be compliant with the current regulations”
Ignacio Aguirre, CMO at Scorechain
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 40 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, and Tron with TRC10 and TRC20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.
About FinchTradeFinchTrade is Swiss based fintech, focused on OTC digital asset liquidity providing to institutional clients. FinchTrade values market integrity, transparency, and security and places technology as the cornerstone of its product offering. Online onboarding, seamless execution, streaming OTC trading and automated post-trade settlement process are the distinctive product features that FinchTrade is proud of.
Conclusion
As more and more institutions realize the advantages of cryptocurrencies and adopt them, AML and KYC standards have become more than necessary. For companies, it is very important to ensure a solid system that will allow the complementing of AML, and KYC due diligence with KYT compliance procedures. The KYT process helps to better understand the intent and nature of dealings to detect suspicious behavior and perform further analysis. Without KYT it is impossible to build a holistic compliance framework and stay compliant with emerging regulations.
For requesting more information about how we can help reach out to us. We're here to help and answer any questions you may have.
