Finding the right mix: AML for cryptocurrency payments


The global Financial Action Task Force (FATF) updated its guidance on how to manage anti-money laundering (AML) measures in cryptocurrency payments fully two years ago – yet recent evidence suggests that, despite attempts by some crypto exchanges to follow this guidance, the payments industry as a whole has yet to find anything like the right approach.

KYC and rise of cryptocurrency payments

In a recent blog in this series, we discussed the rapid rise in payments using crypto and the importance of better KYC to managing AML for cryptocurrency payments – writes Alex Moss, Business Development Executive, W2.

Since that time, further evidence has emerged to the effect that  70{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of those owning crypto intend to use it to pay for goods and services, and that payments using crypto are rising by 30{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} per month: it’s estimated that 50 million transactions per month world-wide are now settled using digital currencies.

With figures like these, payments companies can no longer afford to ignore cryptocurrencies, especially since recent evidence suggests more criminals are laundering illegal gains by using crypto to pay for small transactions via legitimate channels in a process known as “swimming.”

FATF’s most recent commentary on AML for crypto transactions notes the wide range of methodologies being adopted by both payments companies and the external AML providers serving them, ranging from a completely undifferentiated approach (i.e. the same methods used for both crypto and fiat transactions) to complex specialist methodologies for crypto that may not be as effective as claimed.

As we have discussed elsewhere, AML in crypto has specific challenges, including difficulties identifying the counterparties in a transaction, or monitoring the cash-out methods used to transfer value from crypto to traditional fiat currencies.

With the first multi-party standards for AML in crypto now emerging, it’s important that companies stay in touch with regulatory requirements and the range of solutions on offer – while recognising that when it comes to AML in crypto, there is no “one size fits all” approach.

Although regulators require evidence of monitoring for financial crime in crypto just as with all other kinds of transaction, regulation tends to be delivered via examples and standards which are open to interpretation, rather than rules to be followed.

This makes it doubly important that companies find an approach to AML in crypto that works for them – and that they work with partners who have both the breadth and depth of technology and a flexible mindset to offer tailored solutions.

In summary, financial institutions, merchants and intermediaries can no longer afford to ignore cryptocurrency payments, or the specialist approaches needed to ensure adequate transaction monitoring.

As regulation surrounding crypto develops, companies should be taking action to make sure they have a viable AML solution in place for crypto transactions.

For a discussion about finding the right AML solution for crypto payments in your organisation, please  get in touch with W2

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