Those wanting to learn more about how crypto-assets can pose potential financial crime risks should perhaps look at new findings published by UK Finance.
The self-acclaimed ‘voice for the banking and finance industry’ published the “Navigating the path to respectability” report earlier this week, looking at how people can make sense of financial crime risk caused by cryptocurrencies and how this can be managed to mitigate these jeopardies.
PWC recently revealed how serious this issue currently is, with its recent Global Economic Survey showing that more than half (56 percent) of organizations have experienced fraud in the last two years. This represents the highest proportion on record.
Chairman of UK Finance Bob Wigley wrote in the foreword for the report: “Economic crime threats are continually evolving, impacted by the emergence of new technologies, services and products, and the crypto asset sector is no exception.”
He noted that many countries, including the UK, have legislated to regulate crypto assets firms for anti-money laundering and counter-terrorist financing. However, this is currently the transitional period, and this legislation can be difficult to apply to this industry due to the “semi-anonymous nature of crypto assets and the fast pace of change across technology, business models and regulation”.
Despite many firms working with financial crime controls, there are still lots that have been using new technology to increase anonymity and go under the radar of fraud prevention strategies.
UK Finance looked at the range of crypto-asset business activity, as well as financial crime risk, in order to “help financial institutions inform their risk appetite and take a more considered approach to risk management”.
Mr. Wigley stated that while it is essential the regulated private sector does everything it can to ensure legal compliance, policymakers, and regulators also need to do their part for effective risk management.
Currently, policymakers within the UK are developing financial crime regulations to achieve a balance between reducing the risks of illegal finance activity while also supporting innovation in the crypto asset sector, which will benefit consumers and the economy in the long term.
UK Finance, which represents around 300 businesses across the financial industry, concluded that encouraging different sectors to work together would help create a “potential roadmap for collaborative ventures”.
These include public-private partnerships and the sharing of intelligence; greater engagement with crypto-sector trade bodies; and financial institutions onboarding and offboarding of clients to adhere to financial crime rules.
“Given the global nature of crypto assets, an enhanced level of cooperation and collaboration between regulators and the industry is required,” the report stated, adding: “In line with regulatory objectives, this could lead to more efficient registration, supervision, and consumer protection.”
It noted that banks, for instance, are beginning to partner with crypto asset companies due to a rise in demand from clients.
In order to protect consumers more and encourage a greater number of investors to consider crypto assets, UK Finance suggests setting sensible limits and controls regarding products.
“We are already seeing action in this area from some crypto-exchanges, however, there is more to do in order to fully assuage the concerns of regulators across the globe,” the report concluded.
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