On Sep. 27, Basel Institute issued summary of panel discussion.
Basel Institute issued a summary following panel discussion at the 8th Global Conference on Criminal Finances and Cryptocurrencies on the vital role financial institutions play in preventing and detecting money laundering through crypto assets.
From perspective of banks and other financial institutions, how to address crypto-related financial crime risks and create regulatory policy without hindering innovation.
The global economy faces the challenge of achieving payment transparency in cross-border payments: issue is particularly important from a regulatory policy perspective.
With right approach, cryptocurrencies can have a positive impact: serve as a tool for financial inclusion and innovation, providing greater access to financial services for individuals and groups who have previously been excluded from traditional banking.
Considering its inherent risk profile, crypto can also function as a catalyst for meaningful regulatory reforms worldwide; cryptocurrencies are linked to technological advances, such as immutable ledgers and publicly accessible blockchains.
Blockchain and related crypto analytical tools have been developed to make use of data recorded and to enable analysis and monitoring of cryptocurrency transactions.
Help financial institutions and other actors decipher complex data and manage risks.
With flows of money becoming more intertwined with emergence of cryptocurrencies, traditional financial institutions increasingly involved in managing crypto value flows.
Banks crucial for crypto on- and off-ramps, bridging fiat currencies and digital assets.
Blockchain as a Tool in AML/CFT
Crypto’s use of blockchain technologies can enhance efforts in AML/CFT.
Advanced tools can analyse transaction patterns, identify links between addresses, and be applied to techniques designed to enhance anonymity, obscure transaction details.
Blockchain technology can be used for information sharing: blockchain could facilitate secure collaboration between financial institutions, regulators and law enforcement.
Smart contracts can be used to automate compliance and enforce regulations directly on blockchain; real-time monitoring allows for quick detection of suspicious activity.
Regulatory Challenges
Despite advances, challenges persist in development and regulation of cryptocurrency:
Anonymity and pseudonymity: A significant challenge is balancing the right of individuals to privacy – one reason many users flock to crypto – with need to prevent money laundering or other forms of financial crime, for which identification is central.
Regulatory fragmentation: Another challenge is addressing fragmented and inconsistent regulations across jurisdictions, as well as uneven implementation.
As cryptocurrencies become more widely accepted, governments and relevant international bodies need to work together to develop consistent and standardised regulations applicable to the crypto ecosystem and to implement these effectively.
Decentralisation vs. centralisation: whereas centralised crypto asset service providers (where controlling entities and/or persons are easily identifiable) easier to regulate, more decentralised crypto exchanges/services pose challenges for regulatory oversight.
