Cryptoasset Compliance - May 21st 2021 - V1 Email
Cryptoasset Compliance - May 21st 2021 - V1 Email
Cryptoasset Compliance - May 21st 2021 - V1 Email
cryptoasset compliance
for commercial banks
Elisabete Botinas
Novo Banco - May 21st, 2021
“To revenge crime is important, but to prevent it is more so.”
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0. Who we are and what is Instituto New Economy?
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Clear, independent thinking
for the new digital economy
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Clear, independent thinking
for the new digital economy
• Industry leaders, professionals and citizens who wish to • We host educational events, publish research papers and
increase Portugal’s global standing and its participation in form committees for best practices and ethical
the digital economy. considerations for new and emerging technologies.
• We believe Portugal is at a crossroads in history where • We aim to promote a balance between risk-based
blockchain technology and cryptoassets are radically supervision and innovation, without stifling emergent
impacting our competitiveness in the global economy. technologies that are at the forefront of the new economy.
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Get in touch with us
through our website
https://neweconomy.institute
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Executive
summary
1. Some context about my experience in traditional financial institutions and crypto fintech
1. From branch manager to chief compliance officer
2. How can banks protect themselves when dealing with cryptoassets, directly and indirectly
1. Defining cryptoassets according to regulation
2. Cryptoassets and the traditional financial system
3. How can banks safely deal with cryptoassets
3. An overview of the KYC & AML processes used by the top exchanges and compliance software tools
1. Coinbase, Kraken, Bitstamp & Gemini
2. Elliptic
3. Chainalysis
4. TRM Labs
5. CipherTrace
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1. Some context about my professional experience
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The first eight years of my career revolved around
operations and business development for traditional banks
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After that, I’ve dedicated the last
ten years to all things compliance
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I’ve joined Uphold in 2014 to help the fully reserved, multi-asset
platform implement its compliance programs and best practices
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In 2021, I’ve joined FinClusive, also as Chief Compliance Officer,
to help develop our Compliance as a Service offering
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2. How can banks protect themselves from cryptoassets
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2.1. Key definitions for today
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Before we begin, let’s define what we’re talking about,
noting these terms are fairly interchangeable
Note: Some key institutions, such as the Financial Stability Board and Bank for International Settlements, use cryptoassets, whereas others, such as FATF and Banco de Portugal, use virtual assets.
Cryptoasset is a superior definition, as many virtual assets (e.g. in-game currencies) aren’t related to the topic at hand, but they mostly overlap.
Source: A General Taxonomy for Cryptographic Assets - Brave New Coin, 2018 16
The taxonomy isn’t ever-evolving, but it shows the diversity of
applications and use-cases stemming from cryptoasset innovation
Source: A General Taxonomy for Cryptographic Assets - Brave New Coin, 2018 17
Crypotassets are overwhelming, but they
are also also the present and the future of finance
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Over the past few years, all kinds of financial institutions have
forayed into the cryptoasset world, mostly by investing in startups
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Even if recently most of these banks claimed they
weren’t interested in offering crypto investing services
Source: Cornerstone Advisors survey of 260 community-based financial institution executives, 2020 23
This change of mind is tied up to the fact customers
still show large interest in this new, exciting asset class
Source: Cornerstone Advisors survey of 260 community-based financial institution executives, 2020 24
2.3. How can banks safely deal with cryptoassets then?
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Banks can deal with cryptoassets in two more or less direct ways: 1) by
accepting customers who deal with cryptoassets in other venues
Being friendly with business customers Being friendly with customers who interact
which operate with cryptoassets with cryptoasset exchanges
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Or 2) simply by directly offering cryptoasset-related services to
their customers, e.g. trading, custody, and wealth management
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In brief, banks only interact with cryptoassets directly if they provide
“virtual asset services” or if their customers deal with cryptoassets
iv. Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
As long as those transfers happen between Or between legal, regulated entities (e.g.
legally-allowed citizens and exchanges crypto startups*) and exchanges
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Elliptic provides compliance solutions for cryptoasset risk
management. It’s backed by Wells Fargo and Santander Innoventures
Not all crypto exchanges and businesses are alike. Take a nuanced, risk-based
approach to better manage risk exposure to 250+ Virtual Asset Service Providers (VASPs).
Coinbase BTC-e
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Low Counterparty High Counterparty
Risk Risk
Source: Elliptic 37
In the end, it’s all about capturing an opportunity with
a risk-based compliance to address relevant regulations
• Use blockchain forensics tools to identify scammers and illicit schemes using bank accounts
• Serve crypto businesses which have successfully registered with Banco de Portugal
• Don’t allow customers to buy cryptoassets with a credit card nor pre-paid cards
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3. An overview of key KYC & AML processes
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These exchanges stand as the most
reputable fiat gateways in Europe and USA
Identity Compliance
Headquarters EU Licenses
Verification Software
Formerly San
Required, done by
Coinbase Francisco, going UK and Ireland Coinbase Analytics
Jumio
fully remote
Required and
Kraken San Francisco UK tailored to Chainalysis
countries
Source: Elliptic 41
But Chainalysis Kryptos
is also suitable, it will be a matter of price
Source: Chainalysis 42
We see Chainalysis Kryptos as
analogous to Elliptic Discovery
Source: Chainalysis 43
And, overall, Chainalysis and Elliptic are
the most reputable players in the compliance field
Source: Elliptic 44
CipherTrace Armada could also be a good
option but we haven’t engaged properly yet
Source: CipherTrace 45
TRM is also an emergent player in
area, but we’re to demo their platform
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And, lastly, FinClusive is also developing an offering in this
field, with a full-stack financial crimes compliance platform
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Thank you
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Get in touch with us
through our website
https://neweconomy.institute
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Questions & Answers
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