Banks are encountering a dilemma of how to harmonize innovations with the AML crypto rules that are complex to execute.
Besides, they are faced with anti-money laundering regulations that are aimed at ensuring that the operations are legal and free of any risks.
The article provides insight into the methods that financial institutions have developed to ensure that they conform to regulations when they are in the crypto market.
How Banks Use Cryptocurrencies
Financial institutions use cryptocurrencies in two distinct ways:
1. Indirectly: Several banks do not operate with the cryptocurrency directly, but rather offer VASP-related services such as those of crypto exchanges.
On the contrary, VASPs don’t trade in any cryptocurrency as well, however, they need to be checked to make sure they are not affiliated with any illegitimate financial schemes.
To safely convert digital assets into fiat currency such a comprehensive AML check must be established.
2. Directly: Brokers and financial institutions sometimes act as custodians for their clients’ crypto assets by creating crypto trading desks or investing in cryptocurrency.
The digital asset custodial license in the US and German jurisdictions can be depicted as an illustration. Such frameworks are legal provisions that banks can avail of.
This proximity implies a duty for the lender to oversee the transactions, carry out due diligence, and do risk assessments.
How Banks Adopt AML Measures
Banks stepping into the crypto space adopt AML software in the following ways:
1. Choosing the right software: They are highly likely to use software that is capable of identifying all the money laundering transactions that were conducted within the system and also can track the movement of the dirty money.
2. Adjusting the system: This software is tuned to the bank’s tolerance level of risk to which they are ready to take, the rules which they must abide by, and the laws they must obey.
3. Merging with current systems: The process works smoothly with the bank’s financial applications and therefore, the operation of digital and traditional transactions is covered in one go.
4. Watching transactions closely: This program can be attained by the creation of these algorithms which will be used in tracking all crypto transactions to spot abnormal activities or possible threats.
5. Handling alerts: The system will then proceed to check any anomalies and inform the bank of this. The banks will check the alerts and then deliver a report on any irregular activities to the authorities according to the rules.
6. Remember that the software is updated to process the new types of crypto transactions and satisfy the regulations.
7. Educating staff: The employees get trained to use the AML software to monitor alerts and understand its features.
AML verification procedures are the most important part of a bank that wants to operate with cryptocurrencies because they help to comply with regulations and reduce the risk of money laundering and other illegal activities.
The banks can now monitor the crypto transactions more efficiently with the AML software implementation.
As a result, the banks and their customers enjoy a secure and stable financial environment.
The post How Financial Institutions Integrate AML Crypto Rules appeared first on SunTrust Blog.
