Crypto exchanges are not the only ones with crypto risk exposure anymore, he stated
Kenneth Blanco, the director of the United States Financial Crimes Enforcement Network (FinCEN) has alerted banks to seriously reconsider their cryptocurrency risk exposure. At the virtual 2020 ACAMS Anti-Money Laundering Conference in Las Vegas held this week, Blanco discussed the obligations of banks in implementing effective Anti-Money Laundering (AML) policies.
He outlined FinCEN’s response to the global health crisis and provided an update on FinCEN’s efforts in combating cyber threats and its work in the virtual currency space.
Current FinCEN regulations (FIN-2019-A003) state that all financial institutions including banks hold the responsibility of identifying and reporting any suspicious activity. Blanco explained that such suspicious activity includes those concerning how criminals and other bad actors exploit card verification checks for money laundering, sanctions evasion, and other illicit financing purposes. Many banks are still unaware of how exactly virtual currencies affect their institutions, he added.
Blanco explained the need for banks to have another look at their AML policies and procedures, especially with regards to cryptocurrencies like Bitcoin. The director added that “if banks are not thinking about these issues, it will be apparent when examiners visit.”
“To be clear, exchanges are not the only ones with crypto risk exposure. These risks are not unique to money services businesses or virtual currency exchanges; banks must be thinking about their crypto exposure as well. These are areas your examiners, and FinCEN, will ask you about when assessing the effectiveness of your AML program,” he explained.
Banks must ask themselves whether effective baseline controls are in place to identify consumers, Blanco stated. Financial institutions must question how they are interacting with emerging payment systems and know whether they are dealing with institutional or peer-to-peer virtual currency customers. They must evaluate if they have the tools needed to identify and report potentially suspicious activity occurring through the financial institution, the director explained.
“All of these questions go back to the policies and procedures in place to mitigate risk,” he said.
Crypto analytics firm CipherTrace Labs in 2019 reported that eight of the ten major U.S. retail banks had dealings with illicit crypto money service businesses (MSBs). The MSBs run as unregistered P2P exchanges, accepting cash payments in exchange for crypto. Further, many P2P exchanges have little to no AML or know-your-customer (KYC) mechanisms in place, resulting in extensive money laundering risks to banks and other financial institutes.