Key challenges of the ‘superfast’ development of current compliance and regulatory system

News | April 5, 2023 By:

Compliance solution providers are charged with keeping up with regulatory changes and with criminals who quickly adapt in order to continue to perpetrate crimes. Experts at the 2023 D.C. Blockchain Summit last week argued that it’s not a simple task.

“It’s very hard to develop these kinds of solutions because you have to keep up with the pace of development of blockchain itself and consider the complexity of the space,” said Marina Khaustova, CEO of Crystal Blockchain Analytics. “It develops superfast.”

Binance has expanded and ramped up its compliance programs to keep up. Last year alone, the digital asset exchange responded to more than 27,000 law enforcement requests.

“We have more than 750 employees in compliance, security and anti-fraud roles,” said Erin Fracolli, head of intelligence and investigations with Binance.com. “Part of the way we keep up is by investing in those experts who can take the technology and interpret it correctly and provide those key insights to what we’re seeing.”

Fracolli and Khaustova were featured speakers on “The Role of Compliance Solutions” panel at the Summit along with Bitwise Asset Management General Counsel and Chief Compliance Officer Katherine Dowling, and Notabene Head of Regulatory and Compliance Lana Schwartzman.

Jamal El-Hindi, counsel at Clifford Chance, moderated the panel.

“Investigating crypto crime or crime using cryptocurrency requires blockchain tracing, which is an art and a science,” Fracolli added. “There’s the technical component where you have these amazing technologies coming out that can really help with these … crimes and compliance investigations.”

Notabene is focused on Travel Rule compliance and pre-transaction transparency. Its second annual Travel Rule study found that 84% of respondents are at some level of compliance when it comes to travel rule or will be by the end of 2023.

“The travel rule is not just about sending the originator and the beneficiary information securely,” Schwartzman told the audience. “It’s about identifying and stopping this high-risk activity before it occurs, and now for once we have the ability to stop an illicit transaction before it occurs on the blockchain. That’s the next level revolutionary compliance measure and controls.”

The Financial Action Task Force Travel Rule, also known as the Crypto Travel Rule, requires financial institutions to share information from electronic transfers with one another.

Unlike finance service providers, Bitwise Asset Management looks at each investor as they arrive before allowing them to subscribe to their funds.

“I’m on the side of not trying to choke with compliance as some of the panelists were saying but rather reaching that institutional caliber approach to counterparty risk, making sure that the monies you’re taking are safe and that they’re not running afoul of regulations at a time now when we are at such a crossroads in this industry of needing to create that trust,” Dowling said.