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AML and other regulations in crypto
Learn more about how MarketGuard AML compliance software can assist a European VASP and CASP with blockchain transaction monitoring and Travel Rule
In the ever-evolving landscape of the crypto industry, being compliant with regulatory requirements is crucial. As governments and financial authorities establish frameworks to govern cryptocurrencies, it is essential for businesses and individuals operating in this space to stay informed and adapt to changing regulations.
After outlining the major compliance requirements in Switzerland, this guide aims to provide effective strategies for compliance in crypto, which includes
Switzerland has emerged as a leading global hub for cryptocurrency and blockchain technology. Thanks to its favourable regulatory environment, pragmatic authorities, stability, and low taxes, the country has attracted a great number of businesses and investors operating in the crypto space.
However, to ensure compliance with Swiss regulations, it is important to understand the major requirements for crypto compliance in Switzerland. Here are the key aspects to consider:
Crypto businesses such as exchanges, token issuers, payment agents and other service providers are required to register with a Self-Regulatory Organization (SRO) or become licensed by the Swiss Financial Market Supervisory Authority (FINMA) depending on their business offering. In particular, SRO registration is a very lean, fast and inexpensive way to become a fully regulated virtual asset service provider (VASP) in Switzerland.
Swiss regulations require financial intermediaries to implement robust AML measures. This includes conducting thorough customer due diligence, verifying the identity of users, sanctions checks and implementing transaction monitoring systems to detect and report suspicious activities.
Crypto businesses are obligated to comply with reporting requirements set by SROs or FINMA. This includes submitting regular reports on their operations, financials, AML measures, and compliance with regulatory obligations.
Crypto service providers of a certain size are required to conduct ongoing risk assessments to identify and assess the AML risks associated with their operations. This involves evaluating the potential risks of money laundering, terrorist financing, and other illicit activities and implementing appropriate risk mitigation measures.
Compliance is an ongoing process. Crypto businesses in Switzerland must continuously monitor their customer and update their compliance measures to align with changing regulations. Regular staff training on AML, sanctions, and other compliance topics is essential to ensure a culture of compliance within the organization.
Compliance with data protection and privacy regulations is essential. Businesses must ensure the secure storage and handling of customer data, adhere to the principles of data minimization and purpose limitation, and comply with the Swiss Data Protection Act (DPA) and the General Data Protection Regulation (GDPR) if EU customer data is handled.
It is advisable for crypto businesses operating in Switzerland to consult with legal and regulatory experts to ensure full understanding and meeting specific compliance requirements imposed by authorities. By adhering to these requirements, businesses can operate within the Swiss regulatory framework, gain trust from customers and investors, and contribute to the growth of the well-established crypto industry in Switzerland.
As a starting point, being informed about the latest regulatory development as well as upcoming rules are essential. Regulatory risks shall be identified, and controlled; regulatory changes shall be proactively addressed in order to be able to adjust the company’s strategy.
Here are effective ways to stay up-to-date on the dynamic regulatory landscape of the crypto industry:
○ Monitor regulatory updates: Regularly consult relevant websites and subscribe to newsletters of regulatory bodies such as financial regulatory agencies, central banks and government entities.
○ Participate in public consultations: Consultations provide opportunities to provide feedback, and express concerns. Participating in consultations allows businesses to stay informed and even contribute to shaping the compliance landscape.
○ Join associations: Become a member of reputable industry associations and organizations. These associations often provide access to regulatory experts, conduct webinars, and conferences, and publish industry reports that shed light on the latest compliance requirements.
○ Participate in forums: Engage in online forums and discussion boards dedicated to compliance in the crypto industry and share experiences with fellow professionals. These platforms facilitate knowledge-sharing and provide insights into regulatory developments.
○ Participate in networking events: Attend conferences, seminars, and industry events where professionals in the crypto space gather. Network with peers, compliance experts, and service providers because it offers knowledge exchange, sharing insights, and discussing the impact of the latest regulatory developments.
○ Maintain close relationships with service providers: Forge strong relationships with compliance service providers as it helps stay updated on product enhancements, new features, and compliance-related developments. In particular, learning how to efficiently handle compliance tasks is a key asset.
○ Stay updated on community publications: Various guidelines and announcements related to compliance are regularly published and commented online. Also getting information and publications from law firms and in particular compliance experts are helpful. Many of those experts publish content on LinkedIn.
○ Attend webinars and workshops: Participate in webinars and workshops conducted by regulatory authorities, industry associations, compliance experts, and legal firms. Such events provide in-depth insights into the latest regulatory updates, case studies, and practical guidance for compliance professionals in the crypto space.
○ Enroll in courses and certifications: Invest in specialized online courses and certifications that focus on compliance in the crypto industry. These courses cover topics such as regulatory frameworks, risk assessment methodologies, transaction monitoring, and best practices.
To effectively address compliance concerns, companies are well advised to thoroughly evaluate and choose a suitable service provider. Here are the respective key factors for a successful selection:
Research the service provider’s reputation, experience, and track record in the crypto industry. Look for testimonials, case studies, and customer feedback to assess their reliability and effectiveness in addressing compliance concerns.
Assess the service provider’s knowledge of compliance regulations and their ability to stay updated with regulatory changes. Inquire about their compliance practices, data security measures, and certifications to ensure alignment with industry standards.
Learn more about the service providers’ offering, fee model and potential conflict of interest. It is advisable to choose a provider running a risk-based approach and who focus on working with IT tool instead of manual work.
Evaluate the service provider’s technological capabilities, including their data analysis tools, machine learning algorithms, and system architecture. Ensure they have a comprehensive understanding of the crypto landscape and possess the technical expertise to adapt to emerging trends.
Determine how the service provider collaborates with compliance specialists and their commitment to incorporating feedback and suggestions.
To navigate the complex landscape of crypto compliance, many businesses and individuals seek the expertise of consultants specializing in the field. JayBee AG as a specialized consultant provides valuable guidance and support in understanding and implementing regulatory requirements based on their experience with 130+ financial intermediaries in the crypto & fintech space. Compliance outsourcing is one of JayBee’s key service offerings, saving companies from wasting time on compliance tasks and instead focusing on business development.
The JayBee specialists can assist with various aspects of crypto compliance including:
Consultants support entrepreneurs in establishing their companies and, based on their business case, getting the right license or membership. Thanks to the large network of service and AML tool providers, introduction to best-in-class partners is ensured as well.
Consultants design and implement robust compliance frameworks tailored to the specific needs of the business, considering factors such as jurisdiction, business model, and customer base.
Consultants can perform comprehensive assessments of existing compliance processes and procedures to identify gaps and recommend necessary improvements.
Consultants stay up-to-date with the latest regulatory developments and can offer insights on how new regulations may impact the business. They can help interpret complex regulatory language and provide practical advice on compliance implementation.
Consultants offer training programs and workshops to educate staff on compliance requirements, best practices, and emerging trends. This helps build a culture of compliance within the organization.
Compliance software solutions play a vital role in streamlining and automating compliance processes. Such solutions are essential in simplifying and streamlining compliance processes allowing businesses to maintain a high level of compliance efficiency and effectiveness.
Here are the key features that make compliance software solutions indispensable:
The onboarding process for customers is a critical part of the company’s processes. Exposed customers and illicit assets shall be kept away, compliance requirements shall be met and on the other hand, the drop rate shall be kept at a minimum by offering a fast process and a pleasant user experience. In addition, costs per onboarding are crucial from an economic perspective. Compliance software helps to meet all requirements at once.
Compliance software automates the customer due diligence process, alleviating the burden of manual checks. It performs identity verification and screens clients against sanction lists and watchlists to ensure adherence to AML regulations. By automating these checks, compliance software significantly enhances the accuracy and efficiency of the due diligence process.
Software solutions integrate client information based on data sources such as transaction records, public databases, and sanction lists. AML officers and legal advisors have the option to define risk criteria in line with regulatory requirements and internal policies. Factors such as transaction volumes, jurisdictions, business types, and previous compliance issues are made available to generate an objective risk score in order to categorize clients into high or standard risk.
Real-time transaction monitoring is a critical aspect of compliance. Smart solutions are designed to match client bank accounts as well as blockchain addresses with their transactions. Such matching is a prerequisite for continuously monitoring transactions, utilizing advanced algorithms and pattern recognition to detect suspicious activities promptly. When potential red flags are identified, the software generates alerts, enabling AML officers and legal advisors to initiate further investigations promptly.
Compliance software simplifies the arduous task of generating comprehensive reports for regulatory authorities. With built-in reporting functionalities, it automates the process, ensuring accurate and timely submission of compliance reports.
In a nutshell, compliance software solutions are indispensable tools for AML officers and legal advisors. Automated AML checks, real-time transaction monitoring, simplified compliance reporting, and keeping businesses up to date with regulatory changes are the key benefits. By leveraging these solutions, AML officers and legal advisors can streamline their workflows, enhance accuracy and efficiency, and ultimately ensure robust compliance in a dynamic cryptocurrency industry.
What makes MarketGuard outstanding is that it has multiple integrations with third-party service providers such as banks, crypto exchanges and crypto custodians in order to collect all the transactions into a single database, thus significantly reducing manual processing. MarketGuard carefully selects solutions developed by regulatory experts who are dedicated to swiftly updating their products in response to new regulatory updates. These solutions are designed by teams who possess in-depth knowledge and understanding of the regulatory landscape. As soon as new regulatory updates become publicly available, the necessary changes are being promptly implemented on the platforms to ensure compliance products remain up-to-date.
By leveraging MarketGuard technology, clients can benefit from the agility and speed at which the compliance solutions are adapted to the evolving regulatory environment. In addition, MarketGuard supports several formats of AML reporting including those adopted in the target DACH region as well as Lithuania and Poland.
Staying crypto-compliant is crucial for businesses and individuals operating in the crypto space. By staying up-to-date with news and regulations, working with consultants like JayBee AG, and utilizing compliance software solutions such as MarketGuard Compliance Software, allows businesses to navigate the regulatory landscape effectively. Adhering to compliance requirements not only ensures a timely adjustment of the strategy and mitigates the risk of legal and financial sanctions but also prevents unfavourable investments and enhances trust and credibility within the crypto industry.
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About the authors:
Jürg Baltensperger is considered a regulatory expert with a focus on compliance, risk management and corporate governance. As managing director of JayBee AG, he supports companies to get the right license, strengthen their regulatory set-up and processes, adapt new regulation, remediate regulatory legacy and enables clients to work on their future. In addition, Jürg is engaged as a lecturer at the universities of Applied Science of Zurich, Lucerne and Winterthur.
Maya Gozman is a COO of FineryTech, a holding company that owns FinchTrade and MarketGuard. Maya has multiyear experience in financial markets operations and treasury management and contributes to creating advanced AML compliance software for the blockchain industry.
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