Is it possible to step up the AML measures?

Payment security has evolved dramatically, from manual cheque verification to sophisticated fraud prevention and AML techniques. In just two and a half decades, financial institutions, payment gateways, NBFCs, and e-commerce platforms have made significant strides in fraud detection, prevention, and AML.

While traditional finance boasts dedicated workforces combating money laundering, payment fraud, and sanctions, the question arises: “Why is crypto lagging behind?”

The answer is complex. Fiat payments undergo centralized verification, involving banks, credit card companies, and payment processors confirming KYC, fund availability, and transaction validity. Conversely, cryptocurrency transactions are verified by a decentralized network of nodes on a blockchain, involving adding and validating blocks.

This process can range from minutes to days in fiat depending upon the size of the transaction, location and risks associated with it, while crypto confirmations vary from 10 minutes (Bitcoin) to 3 seconds (Tron).

Given the limitations in directly verifying cryptocurrency transaction legitimacy, can exchanges serve as crucial checkpoints? With the Travel Rule, exchanges must share party details. But what more can be done?

The solution lies in replicating established fiat fraud detection and AML practices within cryptocurrency exchanges:

• Mandatory KYC: Implement thorough KYC at account creation.
• Credential Verification: Enforce email/phone verification and 2-factor authentication.
• Comprehensive Logging: Record login sessions, activity events, registered email/phone, encrypted passwords, and digital fingerprints, including:
  > IP Address
  > Internet Service Provider
  > Operating System version
  > Unique Browser ID (UBID)
  > Flash UBID
  > Device Timezone (TZ)
• Machine Learning (ML) for Behavior Analytics: Develop ML models to identify patterns and trends in login sessions, combined with transactional risk exposure.
• Dedicated Investigation Team: Maintain a skilled team to manually review threats and alerts, preventing illicit transactions and money laundering.

Enhancing ecosystem security requires a collaborative community effort to strengthen defenses against illicit activities.