Bitcoin Innovation Not Exempt From Compliance

  • Compliance, Fraud Prevention

The great thing about innovation is that it typically results in making everyday tasks easier and less time consuming for individuals and businesses. For example, Ive always loathed going shopping, because it is such a time consuming process. Whether Ive had to get one item or a full cart, I always get stuck in line waiting forever. Today going to the grocery has become a much more bearable experience, due to the innovation of self-checkout. On the other hand, several individuals skip the brick and mortar store completely and choose to purchase everything online because of the Internet. Thank goodness for innovation! Can you imagine life without your email, smart phone, car or social networks?

Peer-to-peer money transfer and payment processing is one of those areas that continues to experience transformation. Although there have been a number of different methods and new companies are always on the rise with the next big idea, there has always been the consistent fact that a bank or clearinghouse is involved in the process, until now. Bitcoin has erupted onto the scene as the first decentralized digital currency. Now individuals can send bitcoin payments directly to their friends around the world via the web without the larger processing imposed by banks. At the same time, this is very appealing to the under banked, because you dont have the same requirements of opening a checking account. Although the bitcoin currency is very volatile, the launch of the first bitcoin ATM in Canada this past month and their recent surge in demand in areas such as China, points to the fact that they are here to stay.

A myth that bitcoin providers bought into is that they would not have the same KYC and AML compliance regulations that are faced by other financial institutions. It is evident thats not the case. If someone is looking for anonymity for laundering money, it would seem that bitcoin would become a primary target. Thailand has seen such a threat from the digital currency, that it has been banned from their country all together. The New Yorks State department of financial services has also voiced concerns over regulating Bitcoins. They were in fact so concerned that they subpoenaed 22 major players from the bitcoin industry to get a better understanding of their current practices and to see if regulation is indeed needed for virtual currency.

For bitcoin providers, this should serve as a major red flag. Too many times, companies are reactive instead of proactive in their fraud prevention and compliance strategies. The time for implementing the proper risk management tools is not when a fraudster has laundered money through your platform or once a company has been cracked down on by regulators for lax processes. The time for implementing the proper identity verification and authentication tools is now.


[Contributed by Shea Allen, Account Specialist]