Risk to Financial Service Industry


  • Financial Service Industry Risks
  • Risk to Crypto Consumers
  • Mitigation Plan

Cryptocurrency is a decentralized digital currency that can be used for buying and selling goods and services. With an increase in the utilization of cryptocurrency, the risks associated with the financial service industry have also increased. But, thanks to certain laws, like Anti-Money Laundering Act 2020 (AMLA 2020), which specifically ensures that Bank Secrecy Act (BSA) is applied to crypto. Meaning crypto exchanges are required to follow:

  1. The travel rule
  2. All other BSA regulations including
  1. Customer Due Diligence (CDD)
  2. Suspicious Activity Reports (SARs)
  3. Cash Threshold reports (CTRs)

Financial Service Industry Risks

The biggest risk in the adoption of crypto is poor AML and fraud practices. The reason being:

  • At present Exchange Due Diligence (EDD), is not required on crypto exchanges. 
  • The current regulatory framework is not best fitted for cryptos. People can move their funds with complete anonymity.    
  • In the crypto industry, profit is prioritized over compliance, as no provision is implied to ensure that fraud activities are monitored and reported. 
  • Lack of FinCEN enforcement by the crypto exchanges. 

Risk to Crypto Consumers

In the case of consumers of crypto, the risk is relatively higher. All the distinctive features of crypto, decentralized, always open, intangible, uninsured by any authority, and volatility have contributed to gaining the attention of the criminals. 

Some of the scams that are used on crypto are:

  • Smurfing
  • Money laundering
  • Romance scams
  • Ransomware
  • Blackmailing scams
  • Fake investment scams
  • Phishing, smishing, and vishing   
  • Usage in the Black market

Mitigation Plan

To fight against the criminals and to prevent illegal activities through crypto exchanges, as well as to assist law enforcement, there are several strategies related to compliance and detection that should be implemented.

The first step is screening, all the customers, whether business or individual, should be properly screened for sanctions. Special attention should be given to customers belonging to high-risk countries. For all clients that are on board, the institution should undergo full due diligence. This should include:

  • Full KYC
  • Collecting beneficial ownership for businesses
  • Adverse media screening
  • Conducting risk analysis on public rewards

All the enlisted methods will help in detecting potential risks to the organization and will also be of assistance when aiding law enforcement

Another area that needs to be addressed is to provide adequate knowledge within the regulatory space. Organizations can also use regulatory intelligence tools that will keep the organization updated with all crypto regulation changes. 

Lastly, the implementation of attribution tools, link analysis, and blockchain forensics tools will provide great assistance in investigating fraud and illicit fund usage.  

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.\

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