Banking institutions aiming to engage in virtual currency activities have been advised to adopt blockchain analytics tools for enhanced risk management, according to a statement from New York State Department of Financial Services Superintendent Adrienne A. Harris. In a recent announcement, she emphasized that these tools are essential for improving compliance programs and preventing illegal activities within the sector.
The press release detailed how blockchain analytics can significantly assist banking organizations in assessing their risk exposure through various means, such as customer wallet screening and verification of funds involving virtual asset service providers. Additionally, these tools allow for comprehensive monitoring of illicit activities and risk management related to third-party services. Enhanced due diligence controls can also serve to evaluate the disparities between expected and actual customer activity in virtual currency dealings, thereby assisting institutions in gauging the risks associated with specific products or services tied to digital assets.
Harris stated, “As traditional banking institutions expand into virtual currency activities, their compliance functions must adapt, onboarding new tools and technologies to mitigate new and different risks.” This guidance marks a continuation of prior directives issued in April 2022, where the use of blockchain analytics tools was recommended as a best practice for New York State-regulated virtual currency entities to effectively manage financial risks and identify suspicious activities.
Caitlin Barnett, director of regulation and compliance at Chainalysis, reinforced the benefits of blockchain analytics in a previous interview, stating that the technology allows for straightforward transaction monitoring. She noted that it becomes clear whether funds originate from compliant sources or risk-laden environments, such as darknet markets. This capability to differentiate transaction origins has proven invaluable for institutions navigating the complexities of digital finance.
Recent reports have also highlighted Washington’s evolving regulatory stance as it could potentially transform how banks and custodians interact with digital assets, thereby underscoring the importance for banking institutions to stay attuned to the changing landscape of virtual currencies and integrate effective risk management strategies.
