How banks are integrating crypto AML software for compliance

With the exposure of traditional banks and financial institutions to crypto-assets and all the risks involved, as well as the continued advice from governmental authorities to banks to integrate a crypto risk management system, what are the solutions available?

In order to align with current regulatory standards, banks and financial institutions entering the digital asset space, whether as direct or indirect service providers, must comply with Anti-Money Laundering and Know Your Transaction, or KYT, compliance - as part of broader Know Your Customer processes.

Without in-house setups to cater to this, how are banks solving this problem? What solutions can they use to meet due diligence standards?

Direct contact: These might be crypto banks, trust funds, or financial institutions that have direct contact with cryptocurrencies - for example, as custodians of digital assets for their customers.

In the United States and Germany, it is now legal for banks to have a digital asset custodial license, and for financial services like these, there is an added level of due diligence, transaction monitoring, and risk profiling needed.

According to the Basel Committee on Banking Supervision, the primary global standard-setter for the prudential regulation of banks, "a bank's risk management framework for crypto-assets should be fully integrated into the overall risk management processes, including those related to anti-money laundering and heightened fraud monitoring." The committee also advises timely updates on risk profiling and risk assessments for banks with crypto-asset exposure.

Banks need to figure out a way to incorporate crypto transaction monitoring and risk profiling within their procedures.

Because banks are no longer only monitoring the usual fiat-to-fiat transactions, as they now also look at crypto-to-fiat and fiat-to-crypto transactions, they'll need to work through the blockchain tech the transactions are built on.

One of the questions for banks and financial institutions - which must prioritize data confidentiality and security, especially considering the Financial Action Task Force's Travel Rule - is how to ensure data security with third-party compliance software.

One option for a crypto compliance software solution is Crystal Blockchain, an analytics platform that provides secure and automated transaction and fund-flow monitoring for banks and financial institutions, and is consistently updated to meet FATF and 5AMLD requirements.