As traditional banks and financial institution become more directly involved with cryptocurrencies, they need to consider KYT as part of their KYC compliance due diligence
The history of Knowing Your Customer (KYC) procedures can be dated back thousands of years, however, modern KYC laws as we know them have only been in place for the last fifty years to combat money laundering as we know it today. In those 50 years — while the principles of money laundering have stayed the same — the mechanisms have changed. This means that compliance officers and AML/KYC procedures need to keep changing to keep up.
AML/KYC procedures for crypto have also changed considerably in the last two years. In June 2019, the Financial Action Task Force (FATF) laid out guidelines obliging “countries to assess and mitigate their risks associated with virtual asset activities and service providers; license or register service providers and subject them to supervision or monitoring by competent national authorities […] and implement sanctions and other enforcement measures when service providers fail to comply with their AML/CFT obligations; and underscore the importance of international cooperation.” In January 2020, the EU adopted the 5th Anti-Money Laundering Directive (5AMLD) with further transaction monitoring obligations.
This brings us to the topic of transaction monitoring and Knowing Your Transactions (KYT). With cryptocurrencies and blockchain technology, the focus is not on the person but on the entity or the transaction, on the historical attributions of that transaction, and the connections to that transaction. With blockchain — it’s not about monitoring a customer — it’s about monitoring the flow of funds through an address to assess the legitimacy and legality of that transaction.
For this reason, as banks and financial institutions become more involved with digital assets — whether directly as a service provider or indirectly as a digital asset account manager — these institutions will need to start to consider understanding more about transactions and fund flows on the blockchain, and complimenting KYC due diligence with KYT compliance procedures.
The most effective way to implement Know Your Transaction procedures alongside traditional KYC, for cryptocurrency transaction monitoring, is by employing a compliance software solution that securely and effectively detects and risk assesses transactions on the blockchain. An analytics solution like Crystal Blockchain allows bank and FI compliance officers to monitor crypto transactions in an automated way, ensuring digital asset flows are kept in alignment with current FATF and 5AMLD crypto transaction monitoring and risk assessment requirements.
If you have any questions about how to use Crystal Blockchain for transaction monitoring or KYT compliance or using any other platform feature, new or old, get in touch with the Crystal analytics team.