Payment Screening Process Imperative Measures to Safeguard Crypto Trading

The payment screening process falls under the legal requirements put forth by regulatory bodies such as FATF, EU, and FINTRAC as a part of building Anti-Money Laundering (AML) compliance programs. It requires the crypto industry to scrutinize individuals’ transactional behavior. Criminals take advantage of the anonymity and speed within the trading of these tokens to conceal their true source of funds as well as identities. 

As criminals easily move illicit funds through accounts and coins, it has become challenging for investment-providing platforms to perform transaction screening. Therefore, to stay put with AML/CFT regulations and make trading more secure, online exchanges need to upgrade their payment screening processes. This blog covers challenges the crypto industry faces and how digital solutions help combat risk-involved transactions. 

Challenges Involved in Monitoring of Transactions within Crypto Trading

Decentralized exchanges and the use of a ledger (network of thousands of global computers) to store data make cryptoverse more vulnerable to criminal threats. As online trading platforms lack adequate regulatory checks, fraudsters easily steer clear of payment screening processes. This helps them escape identity verification and launder big sums of money. Furthermore, moving funds across different accounts and using them to make high-value investments make suspicious transaction monitoring more challenging.  

Cybercriminals are posing various risks mainly money laundering as crypto trading provides enough opportunities to carry out their malicious intentions. However, this not only exposes online exchanges to hefty non-compliance fines but also complicates payment screening processes. Insights into more challenges that the crypto industry undergoes are in the next section:

High-Speed Transactions

Crypto tokens are the advanced form of digital currencies and use blockchain technology to record transactions. This makes the payment seamless and customers can transfer the desired amount for investment in a matter of seconds. Where this option drives convenience and instant trading, it also increases the flow of illicit funds. 

Criminals target the crypto industry to escape payment monitoring processes and launder their proceeds of crime without the exchange even noticing. Similarly, they manage to dodge transaction screening control made mandatory by regulatory watchdogs. 

Complexities within Crypto Trading

As cryptocurrencies involve the use of advanced technologies which are yet difficult to grasp by legislators. Moreover, banks, regulators, and other financial institutions are also less familiar with the concept of digital currency trading. This makes online crypto exchanges more vulnerable to criminal threats and inefficient monitoring of transactions. 

Due to inadequate knowledge of cryptocurrencies, blockchain, and the rest of other related concepts, it becomes difficult for regulators to outline specific countermeasures. However, they are striving to combat money laundering by enforcing strict requirements such as building payment screening processes and centralizing online trading platforms. 

With regulatory control to secure investments, these stringent measures are driving other consequences as well. For crypto exchanges, it is more difficult to stay put with regulatory checks while minimizing penalties.

Anonymity of Buyers and Sellers

Customer anonymity is another challenge the crypto industry is facing. Criminals are creating synthetic identities to hide their sources of funds and bypass payment screening processes. Furthermore, it helps them launder high sums of money without creating suspicious transactional patterns. 

Keeping the involvement of buyers and sellers’ anonymity under consideration, regulatory watchdogs are making monitoring of transactions in the KYC process mandatory. Online exchanges need to validate the true identities of customers prior to their onboarding. The major reason behind the high adoption of cryptocurrencies was anonymity. Changing their services is resulting in a market value drop evident from the Bitcoin fall below $22,000 in August 2022. 

Money Muling

The benefits of anonymity are extensive for both the crypto industry and criminals. They engage third parties such as trading personnel, friends, or payment providers to make transactions on their behalf. In this process, the actual owner of illicit funds escapes payment screening processes while legitimate consumers at the front face the consequences. For instance, legal proceedings, regulatory scrutiny, or ending up on sanction lists. 

Money muling helps criminals create fewer payment doubts while making it challenging for crypto exchanges to perform suspicious transaction monitoring. However, by incorporating efficient payment screening processes, online trading platforms can identify these fraud risks while preventing money laundering. 

Funds Structuring

Criminals use a major type of money laundering – structuring, to easily hide illicit funds transfer traces. By using this technique, they perform several transactions while staying within the threshold limit. Criminals perform several low-value transfers or withdrawals that do not create suspiciousness. Similarly, by combining synthetic identities, they easily pass through payment screening processes. 

Structuring is one of the sophisticated types of money laundering and due to legitimate-looking payments, crypto exchanges are unable to report suspiciousness. This results in failure with AML monitoring laws ultimately leading to hefty fines.

In a Nutshell

For the crypto industry, building real-time transaction reporting systems has become a liability to collect and analyze huge data sets. Furthermore, regulatory watchdogs are enforcing strict regulations for online exchanges to mitigate money laundering, terrorist funding, and other organized crimes. Digital payment screening processes help the crypto trading platforms enhance accuracy, detect suspiciousness, and report them in a timely manner.

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