Our whitepaper makes sense of the spectrum of financial crime risk posed by cryptoassets, how to manage it effectively and what firms need to consider and prepare to safeguard the financial system by adopting a truly risk-based approach and enable the cryptoasset industry to flourish.
Economic crime threats are continually evolving, impacted by the emergence of new technologies, services and products, and the cryptoasset sector is no exception. Ten years ago, Bitcoin mining had become the token of choice for darknet markets with over a third of cryptoasset transactions estimated to be illicit. Today the direction of travel is very different. International standard-setters such as the Financial Action Task Force (FATF) have laid down the challenge for the crypto sector to become a regulated gatekeeper to the legitimate economy, with the UK and other countries legislating to bring cryptoasset firms within regulation for anti-money laundering and counter-terrorist financing.
This paper aims to support financial institutions as they navigate this transitional period. While the anti-money laundering regime is meant to support a risk-based approach this can be difficult to apply to the cryptoasset sector, given the semi-anonymous nature of cryptoassets and the fast pace of change across technology, business models and regulation. While many cryptoasset firms are developing and applying innovative technological approaches to financial crime controls, there are also new types of cryptoassets, exchanges and tools being used to enhance anonymity and defeat KYC and fraud prevention techniques. By summarising the range of cyptoasset business activity, associated financial crime risk and good practice, this paper aims to help financial institutions inform their risk appetite and take a more considered approach to risk management