Compliance for Bitcoin Companies - FT Live

Compliance for Bitcoin Companies - FT Live

Emerging payment systems Risks and Regulations: the way forward Can virtual currency replace money? Decentralized Pseudonymous

Not regulated Susceptible to hacks, fraud and theft The risk of non compliance The financial world has been dealing with increased regulation for a few decades 9/11 and the financial crisis have contributed significantly to the compliance burden (and cost) of banks

Authorities have shown zero tolerance for money laundering and terrorist financing If Bitcoin is to succeed, regulation is unavoidable Is Bitcoin still unregulated? Tax authorities have issued guidance on Bitcoin transactions The guidance varies per country. Some consider the

transactions taxable, some levy sales tax on the sale of Bitcoin and some on the services connected with Bitcoin FinCen has issued a statement saying that Bitcoin processors and exchanges may be considered money services businesses under US law Regulation will kick in soon In March 2014, the Monetary Authority of Singapore (MAS) announced its intention to

regulate virtual currency intermediaries for money laundering and terrorist financing risks, making it one of the first countries in the world to do so On July 17, 2014 the New York Department of Financial Services (DFS) issued a proposal for a regulatory framework Other regulators have announced that they are considering

regulation The New York Bit License key requirements Safeguarding consumer assets Virtual currency receipts Consumer complaint policies Consumer disclosures Anti-Money Laundering compliance KYC SAR reporting Cyber security

Dedicated compliance and security officers Capital requirements Disaster recovery What do modern financial crimes have in common? Highly organised They are using online systems to remain anonymous They know how to use multiple service providers and how they interconnect They know exactly where the weak points are and how to exploit them

The rely on speed and stay under the radar Maximizing profit until discovery Onboarding Client experience needs to be top of mind for everyone A bad onboarding experience can lead to prospects dropping out Onboarding institutional clients can be very complicated Compliance requirements are seen as a burden

Regulators start by looking at your onboarding process Behavioral detection to prevent fraud and money laundering = account = within set parameters Transaction amount Outlier Detection

Time between transactions Transaction filtering to prevent terrorist financing Filtering stages Results of activity All transactions in scope for filtering Filtering process

Sanctions Team process Matches (automated) filtering by system Potential hits

(manual) assessment by RTSC Hits (internal) analysis by CAAML Officer Potential Violations

(internal) analysis by Sanctions Team Violations (external) analysis by regulator The future of anti-money laundering

Risk based monitoring Transaction filtering using IP addresses Use algorithms to detect false documents Use AI to detect suspicious patterns Analyse transactions on the Blockchain

Encrypted and anonymous audit chain Automatic exchange of information From Secrecy to Confidentiality Regulation is here to stay Open dialogue with the regulator and the financial industry Pro-active approach on regulation We need more lawyers, bankers and compliance officers!

Erik Wilgenhof Plante [email protected]

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