The crypto industry needs a new compliance playbook – one that can blend transparency and privacy seamlessly. Often seen as the “Wild West,” the crypto world is straining resources to meet the ever-changing government regulations. For crypto firms, maintaining trust with users is paramount; once that trust is broken, attracting new users becomes nearly impossible.
Key insight: “In 2023, more than 20 countries implemented stricter crypto regulations, with 17 jurisdictions, representing 70% of global crypto exposure, tightening their rules.”
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Why are cryptocurrencies used, and how do they work?
Cryptocurrencies appeal to those skeptical of traditional currencies, addressing concerns such as bank failures, inflation, and government control. Using blockchain technology, these digital assets allow for irreversible transactions, managed only by the owner via a private digital key – a digital signature created by a complex algorithm.
But there’s a catch.
The reliance on secure cryptography and owner-controlled privacy has attracted bad actors who abuse crypto for illicit activities like identity theft, money laundering, and terrorism financing.
These bad actors, like any innocent crypto user, can mask their identities while facilitating high-volume, irreversible transactions across borders, making it difficult for authorities to track and recover funds.
Learn more about how GeoComply’s fraud prevention solutions help secure crypto transactions and protect against illicit activities.
Everyone is scrambling for compliance
In 2023, more than 20 countries introduced stricter crypto regulations, driven by government and law enforcement involvement. A report by TRM Labs revealed that 17 jurisdictions, representing 70% of global crypto exposure, tightened their regulations, imposing heavy fines and penalties on crypto firms.
As a result, firms are rushing to strengthen their compliance programs, build new systems, or expand their compliance teams.
For example, Kraken increased its compliance headcount by 55% in 2023, despite a 30% reduction in its total workforce, to handle the growing volume of law enforcement requests and meet regulatory demands.
Did you know? “Kraken increased its compliance headcount by 55% over one year in 2023 to meet regulatory demands, even as its total workforce decreased by 30%.”
What does this mean for crypto firms?
Crypto firms must implement processes to monitor transactions, report suspicious activity, and maintain records to comply with regulations such as:
- AML: Anti-money laundering
- CFT: Combatting the financing of terrorism
- Regulatory compliance
However, meeting these requirements can be challenging for crypto businesses, as they often conflict with the core principles of cryptocurrency – privacy and anonymity.
Building a stronger crypto ecosystem
Rather than viewing compliance and privacy as opposing forces, they should be seen as complementary, working together to create a secure and trustworthy crypto environment. Compliance is critical in protecting the financial system, and in turn, enabling privacy and safeguarding user data.
Explore GeoComply’s advanced device and location insights for seamless compliance and privacy integration.
Key components
- Compliance: Ensures adherence to regulations and safeguards against illicit activities.
- Privacy: Protects user privacy and personal identifying information (PII).
Integrating these two values into a unified operating system is achievable through solutions with advanced device and location insights.
Here’s how we think this innovative solution helps
- Enhanced due diligence: Advanced geolocation solutions allow for the comprehensive verification of user identities and transaction authenticity. By analyzing device attributes like models and operating systems, supported by location data, crypto firms more effectively identify potential fraudulent accounts or suspicious activities.
- Risk-based authentication: Location insights can assess risk levels associated with specific transactions or login attempts. For instance, if a login attempt originated from an unusual location, the system can trigger additional authentication steps, adding an extra layer of security.
- Geo compliance: With precise location data, platforms can ensure compliance by restricting access from prohibited areas.
- Fraud prevention: Monitoring transaction patterns and location data allows companies to identify anomalies that may indicate fraud, money laundering, or other illicit activities. This proactive approach can enhance reputation and foster long-term growth.
- Regulatory reporting: Detailed location data can be used to generate comprehensive reports for regulatory bodies without using PII, demonstrating a commitment to compliance and transparency.
Proactive compliance: “Traditional compliance measures are often reactive. Advanced insights enable the proactive identification and prevention of suspicious activity.”
Raising the bar for compliance: why it matters
- Proactive: Traditional compliance measures often rely on reactive responses to red flags. Advanced insights enable the proactive identification and prevention of suspicious activity.
- Accurate: Location and device insights provide a more objective and reliable way to verify user information than self-reported data alone.
- Efficient: Automating compliance processes saves time and resources, allowing companies to focus on other areas of their business.
- Customer-centric: These measures can be implemented with minimal friction for legitimate users, ensuring a seamless and positive experience.
With these implementations, crypto businesses are able to raise the bar for compliance without adding unnecessary friction for users, creating a more secure and user-friendly environment.
Is this really necessary for crypto firms?
In the crypto world, VPN usage, proxies, and other device anonymizing tools are common for privacy reasons. However, relying solely on one signal, such as IP address, can create significant blind spots and compliance breaches.
Analyzing multiple signals – like a combination of cell tower, GPS, and WiFi signals, in addition to IP addresses – ensures stronger compliance controls and helps distinguish between innocent VPN users and those with malicious intent in the crypto environment.
Discover how GeoComply Core leverages advanced machine-learning models to enhance fraud detection and ensure compliance.
How this extra step benefits everyone
One of the key values in crypto is improving user experience by protecting their privacy – but how can collecting additional data actually support this value?
Understanding how location and device data actually works is critical in realizing its benefits for the crypto world. GeoComply, for example, only gathers data on location accuracy and device integrity, keeping users anonymous by not collecting any personal identifying information (PII). This approach enables strong anti-fraud and compliance capabilities without exposing any information about a specific user.
In practice, crypto firms can use these insights to recognize transactions coming from sanctioned areas, detect tampered devices, and identify suspicious behaviors like identity theft and location jumping – all with the help of advanced geolocation solutions.
Unlocking revenue from untapped territory
Advanced geolocation data also enables crypto firms to expand their offerings into new markets. Tools like GeoComply Core allow firms to tailor specific geofences to fit different risk levels and boundaries, using the insights from geolocation solutions.
This opens doors to new revenue streams from previously untapped territories while ensuring compliance with regulatory standards, reducing the risk of inadvertently violating sanctions.
Key advantage: “Tailored geofences using advanced geolocation data help crypto firms expand into new markets while maintaining compliance.”
Looking forward
As the crypto industry matures, it’s crucial to implement innovative solutions that bridge the gap between compliance and privacy. With government and regulatory bodies increasing pressure on crypto firms and cracking down on regulations around AML and CFT, these businesses must find a way to remain compliant while offering a seamless user experience.
Interested in leading the way in compliance? Contact our team at GeoComply to explore how we can help navigate the complex world of crypto regulations while maintaining user privacy.
