As regulators get tough, crypto exchanges urged to prioritize compliance

A blockchain analytics firm is urging crypto businesses to make compliance a top priority, as regulators step up requirements for virtual asset service providers.

Bitcoin’s bullish 2020 has sparked an influx of crypto businesses with cutting-edge product features coming into the market — along with new blockchains, tokens, and DeFi protocols. All of these startups will need to meet the regulatory guidelines of the country where they base their business in. 

Crystal Blockchain says 2021 is shaping up to be an important year — and is advising crypto service companies to introduce compliance measures that meet regulatory and due diligence requirements. All this comes after the Financial Action Task Force (FATF) released red flag indicators for virtual asset service providers in September.

These warning signs are designed to help VASPs identify illicit activity involving cryptocurrencies — and include users with an unusual profile suddenly engaging in unusual activity such as large transactions, or transfers being split into many chunks just below reporting thresholds.

Many worldwide jurisdictions and exchanges have been slow to adopt the FATF guidelines — prompting some experts to warn that industry-wide compliance could be years away. This, in part, is down to technical challenges linked to their implementation. However, tools do exist that aim to make the process simpler for VASPs.

Crystal says its crypto compliance software supports all mission-critical features for the current market, meaning red flags can be identified quickly. It boasts proprietary algorithms that attach risk scores to transactions in real time, even before a block is confirmed by a network. This means payments awaiting validation in a mempool can also be scrutinized. The company’s product also constantly monitors changes in regulation, investigates crypto hacks and scams, and automatically tracks international fund flows 24/7.

Keeping VASPs informed

Virtual asset service providers that use Crystal’s infrastructure are given a list featuring dozens of thousands of blacklisted addresses, helping to ensure that tainted crypto — and the accounts that store it — are identified when they come into contact with compliant ecosystems.

According to the company, its tracking system for cryptocurrency investigations is a world first. This tool automatically detects points of crypto liquidation and identifies all transitional addresses that were used along the way. Crystal added that this feature is especially useful for investigators attempting to perform in-depth research on where stolen coins have ended up — and those who are trying to find tangible links to real-world institutions.

The intelligence firm says that its main priority has been delivering a suite of products that are competitively priced and easy to use, despite the advanced features on offer. Constant improvements have been made to its tools over the past two years. According to executives, Crystal Expert — its flagship subscription package — regularly receives praise for being user friendly, with a great deal of thought put into removing superfluous and clunky functions.

“All of these tools, along with stellar customer support, make Crystal Blockchain the preferred analytics platform for crypto compliance officers and for risk management for service providers,” the company added.

Building a better industry

In October, Crystal said it now offers coverage across 70 countries for more than 2,500 service providers. As well as offering a service that can help VASPs meet the regulatory requirements set out by the FATF, it enables European platforms to fulfil the obligations set out by the EU’s 5th Anti-Money Laundering Directive.

A wide range of cryptocurrencies and tokens are supported by Crystal — including Bitcoin, Bitcoin Cash, Tether, Litecoin, Ethereum, ERC-20 and ERC-721 tokens, and XRP. Following a product update in late October, Crystal is capable of supporting more than 1,500 ERC-20 tokens. This includes over 60 well-known DeFi tokens — yearn.finance, Uniswap and Wrapped Bitcoin among them.

Crystal regularly releases reports that shed light on the current state of the crypto sector, too. In May, the company revealed that the dollar value of the Bitcoin transferred between darknet entities and other organizations grew by 65% in Q1 2020 compared with the previous year.

The industry is maturing, and regulatory obligations for VASPs are on the rise. Financial institutions that fail to keep up with the latest requirements could end up being left behind.