How financial institutions should prepare for crypto regulation

While regulation is unlikely to take effect before 2024/2025, financial institutions must consider their strategy for engaging in the crypto market and ensure that they have appropriate controls for anti-money laundering and sanctions compliance, writes Bernadine Reese.

Bernadine Reese is managing director Risk & Compliance at consultants Protiviti (www.protiviti.com/uk-en/bernadine-reese). Bernadine has diverse advisory experience in regulatory compliance, money-laundering investigations, securities trading, investment management and banking issues, and has undertaken complex regulatory investigations commissioned on behalf of the regulator.

Not surprisingly, the boom in cryptocurrencies and other digital, or virtual, assets since their inception in 2009, coupled with the knowledge that criminals tend to be early adopters of new technologies, have led to concerns about their potential use for criminal means. A report by Chainanalysis [1] concludes that cryptocurrency-based crime hit an all-time high of US$20.6 billion in 2022, up from $14bn in 2021, the prior all-time high, with no less than 43 per cent of the illicit transaction volume in 2022 having been associated with sanctioned entities. Whether it is suspected sanctions evasion, money laundering, payments for ransomware cyberattacks or other criminal activities on the dark net, regulators and law enforcement share the concern that digital assets have been widely used for financial crime purposes.