Emerging payment systems
Risks and Regulations: the way forward
Can virtual currency replace money?
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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
Transaction amount
= within set parameters
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
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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]