Author: Tom Gillingham
Cryptocurrencies have become more and more popular over recent years. As a result, making sure outbound cryptocurrency transactions are secure has become increasingly important. With the introduction of new regulations and legislation, crypto businesses must now introduce new processes and layers of technology to protect transactions and fight against criminal activity.
Crypto transactions refer to transferring digital assets from one wallet address to another. It’s essential to check transactions as they include metadata which can highlight fraud, money laundering and the funding of illegal activities. For example, hackers can use phishing techniques to impersonate a person or organisation and fool victims into sending crypto assets to fraudulent wallets. Having robust security systems that check transactions can help flag, prevent malicious activity, and support the integrity of the crypto ecosystem.
To effectively check outbound transactions, there are several Crypto security solutions that businesses can implement, such as wallet screening, volume monitoring, transaction screening and Coincover’s Theft Protection.
Wallet screening involves finding and blocking transactions from known illicit wallets. This is done by updating a database of these wallets and comparing the source wallet of a transaction against the database. The transaction can be blocked or flagged for further investigation if a match is found.
Transaction screening involves finding and blocking transactions based on specific criteria such as transaction amount and destination address. This can be done by setting rules and algorithms that flag transactions that meet certain criteria as suspicious. For example, a rule may be set to flag all transactions over a certain amount as suspicious.
Volume monitoring is the ongoing monitoring of all transactions and wallet activity to detect suspicious activity and prevent the loss of crypto assets by blocking any later outgoing transactions. This can be done using machine learning algorithms that analyse transaction data to find patterns and anomalies that may show fraudulent activity.
Coincover's Theft Protection
Coincover's Theft Protection offers a comprehensive approach to protecting cryptocurrency assets. It combines the above concepts to provide a solution for monitoring and protecting outbound transactions.
Coincover's Theft Protection uses advanced machine learning algorithms, suspicious wallet databases and security protocols to detect and prevent fraudulent activity. Our proactive technology analyses each transaction before they are broadcast to the blockchain. It then provides real-time notifications of suspicious activity, allowing businesses to take immediate action to secure their funds.
The regulatory requirements for cryptocurrencies vary by jurisdiction. However, governments and regulatory bodies are starting to recognise the importance of protecting transactions in the crypto industry. They are implementing regulations to ensure that crypto businesses comply with anti-money laundering (AML) and know-your-customer (KYC) laws to secure funds and prevent fraud.
In the United States, the Financial Crimes Enforcement Network (FinCEN) has issued guidance stating that crypto businesses are considered money services businesses (MSBs) and are subject to the same AML and KYC regulations as traditional financial institutions. This means that crypto businesses must have robust transaction monitoring systems and report suspicious activity to FinCEN. Moreover, the Securities and Exchange Commission (SEC) has issued guidance stating that crypto businesses must protect customer assets and prevent fraud.
In the European Union, the Fifth Anti-Money Laundering Directive (5AMLD) came into effect in January 2020. It requires crypto businesses to follow AML and KYC regulations and have robust transaction monitoring systems. The EU directive also requires crypto businesses to register with their national regulatory body and to appoint a compliance officer. Additionally, the EU is working on a draft regulation on markets in crypto assets (MiCA). It aims to offer a framework for the regulation of crypto assets, including measures for the protection of customer assets and the prevention of fraud.
In the United Kingdom, the Financial Conduct Authority (FCA) has issued guidance stating that crypto businesses are subject to AML and KYC regulations and must have robust transaction monitoring systems. Crypto businesses must also register with the FCA and to appoint a compliance officer. Further, the FCA has issued guidance stating that crypto businesses must protect customer assets and prevent fraud.
In Japan, the Financial Services Agency (FSA) has issued regulations requiring crypto businesses to register with the FSA and follow AML and KYC laws. Furthermore, the FSA has issued guidelines for protecting customer assets and preventing fraud, including managing at least 95% of users’ crypto assets offline.
In Australia, the Australian Transactions and Reporting Analysis Centre (AUSTRAC) has published guidance saying that crypto businesses are subject to AML and KYC regulations and must have robust transaction monitoring systems in place. The AUSTRAC also requires crypto businesses to register with the regulatory body and to appoint a compliance officer. As per the AUSTRAC's guidance, crypto-asset exchange providers must undertake a range of compliance obligations to detect and deter money laundering and terrorism financing activities.
It's important to note that the regulatory requirements are subject to change and keeping track of the latest developments in your region is essential. Moreover, crypto businesses should consider working with a compliance expert or consulting legal counsel to ensure they are aware of and follow the regulatory requirements in their jurisdiction.
Coincover's Theft Protection solution can satisfy these regulatory recommendations and, with AML providers, help businesses get ahead of more stringent requirements. If you’re interested in hearing more, contact us today.