How Does Crypto Compliance Compare to Traditional AML Compliance?

The goals of traditional AML compliance and crypto compliance are all the same: to prevent money laundering, terrorist financing, sanctions evasion, and other financial crimes. Crypto compliance translates the known AML principles to the blockchain and decentralized infrastructure, which generally operate without an intermediary layer like banks. It's AML, but for digital assets, not a new field.

What Is Traditional AML Compliance?

Traditional AML compliance is built around key components: customer due diligence, know your customer checks, enhanced due diligence, transaction monitoring, suspicious activity reporting, sanctions screening, risk assessments, and record keeping. Over the decades, such controls have been incorporated into onboarding and ongoing monitoring by banks and regulated entities.

What Is Crypto Compliance?

Crypto compliance brings the concepts of AML and KYC to cryptocurrency exchanges, Virtual Asset Service Providers, digital asset platforms, custodians, and token issuers. The same due diligence principles of traditional finance are applicable to these businesses, in addition to blockchain-specific risks. The obligations are dependent on the jurisdiction, the business model, and the license status.

Crypto Compliance vs. Traditional AML Compliance

The two disciplines diverge across several practical areas:

Transaction environment: Banking system vs. blockchain and digital asset networks.

Customer identification: KYC/CDD by regulated intermediaries vs. KYC/CDD and digital asset-specific risk.

Transaction visibility: Takes place on-chain, but typically not in the public eye, but rather through institutions.

Identity linkage: Attached to existing accounts rather than blockchain addresses that don't necessarily indicate identities.

Monitoring: Combines account and payment activity with wallet, blockchain, transaction, and customer activity.

Cross-border risk: Important in both, and sometimes more so due to the lack of borders in blockchain architecture.

Investigation: Financial records vs. financial records and blockchain transaction analysis.

Regulatory considerations: Evolving digital asset regulations overlaid with established financial regulations versus AML rules.

Blockchain addresses are pseudonymous, not anonymous. Analytics tools can frequently identify public transactions to specific entities.

Why Blockchain Changes AML Compliance

Transactions facilitated by wallets are fast between jurisdictions and chains, making them harder to monitor. Each type of service, DeFi protocol, peer-to-peer transfer, and unhosted wallet has its unique set of problems. Blockchain transparency extends to providing investigators with information not always provided by traditional finance.

What Skills Are Different?

The courses offered to professionals who are familiar with AML and are making the transition to crypto compliance include blockchain fundamentals, wallet and transaction concepts, digital asset typologies, transaction analysis, FATF guidance on virtual assets, and DeFi risk awareness. A vast majority of positions demand blockchain knowledge, but not coding skills.

Which Type of Compliance Certification Should You Consider?

Existing experience and career goals are the determining factors for the right education. Traditional AML certifications have a wide scope. Digital asset compliance certifications are an amalgamation of blockchain knowledge and AML, regulatory, and governance material. Those already working in AML may find value in broadening their understanding of digital assets, while those new to the field can benefit from a broader foundation prior to AML.

One such program is the Certified Digital Assets Compliance Expert (CDACE)™, a Digital Assets Compliance Certification offered by 101 Blockchains, which is structured as a course of learning that can support existing AML, KYC, risk, audit, or compliance experience.

Frequently Asked Questions

Do the two concepts of crypto compliance and AML compliance overlap?

Not exactly. While the elements of blockchain crypto compliance are essentially the same as the fundamental concepts of AML, such as KYC and transaction monitoring, the underlying crypto transactions, digital wallets, and decentralized infrastructure create risks that are not directly addressed by traditional AML compliance in the same manner.

So what is the primary distinction between AML and crypto compliance?

Traditional AML is carried out via established account structures with intermediaries that have been traditionally regulated. Crypto compliance involves pseudonymous blockchain addresses, public ledgers, and, in many instances, infrastructure that extends beyond borders and jurisdictions. It demands blockchain analytics and blockchain wallet-level monitoring in addition to the AML controls compliance teams are already accustomed to using.

Should crypto compliance practitioners have blockchain skills?

Yes, at the elemental level. Professionals can effectively analyze risk by understanding wallets, transactions, and how blockchain networks work, and can identify the meaning of monitoring alerts. Typically, deep programming skills are not required, but may be beneficial in certain technical or investigative positions.

Can veterans of the AML profession join the crypto compliance fold?

Yes. The expertise gained in the process of customer due diligence, monitoring, and risk assessment is applicable to digital asset environments. Skills and knowledge in blockchain fundamentals, crypto typologies, and understanding of FATF guidance on virtual assets are generally required to complement existing skills and knowledge.

Does it make sense for AML professionals to obtain a crypto compliance certificate?

It is dependent on career objectives. While a certification can be used to formalize knowledge of digital assets and to document structured learning, it is not intended to replace existing AML experience, professional judgment, and/or any existing compliance qualifications.

Conclusion

Traditional AML applies the same principles to the risks and regulatory considerations specific to digital assets, in addition to the foundation of traditional AML. AML practitioners are in an ideal position to further develop their knowledge and skills in blockchain and digital assets.