The New York State Department of Financial Services (DFS) says cryptocurrency businesses should integrate solutions to track on-chain activity in order to comply with requirements of managing financial risks and suspicious activities.
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DFS head Adrienne A. Harris said in a press release crypto firms should incorporate blockchain analytics tools to set controls and meet AML and sanctions-related compliance requirements. Harris, who was nominated to lead DFS in August 2021, says blockchain analytics tools provide companies with an "efficient, data-driven way to conduct customer due diligence." She added:
"We expect regulated entities to utilize best practices to uphold the safety and soundness of the virtual currency market and to protect consumers."
Under the "best practices" New York's financial regulator means that local crypto companies should:
- Establish control measures that may leverage blockchain analytics: clearly documented policies, processes, and procedures with regard to how blockchain analytics tools are integrated into their control framework.
- Augment due diligence controls: obtain and maintain information regarding their customers and potential customers, using this information to understand and effectively address risk.
- Conduct transaction monitoring of on-chain activity: monitor and identify unusual activity tailored to the cryptocurrency entities risk profile; and
- Conduct sanctions screening of on-chain activity: establish and maintain policies, processes, and procedures to identify transaction activity involving cryptocurrency addresses or other identifying information associated with sanctioned individuals and entities.
The full guidance on how crypto businesses in New York should use blockchain analytics tools can be found here.
In February 2021, blockchain forensic firm Chainalysis revealed that only a small group of 270 addresses drive over 50% of money laundering activity in the crypto space. Moreover, a small group of 1,867 addresses received up to 75% of all cryptocurrencies sent from illicit addresses during 2020, the firm added.
However, cryptocurrency-related crimes dropped significantly in 2020. The firm says last year the criminal share of all criminal crypto activity fell to 0.34% ($10 billion), while in 2019 this rate was 2.1% (approximately $21.4 billion).
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