How to Protect Your Bank from Cryptocurrency Risks

Cryptocurrency exchange rates have skyrocketed in the past month. As digital currencies grow, criminals are taking advantage of the emerging technology.  According to a recent report, the total of cryptocurrency related frauds and thefts stands at a staggering $7.69b.  This includes $2.8 billion lost in exchange theft and security breaches, and $4.8 billion of losses stemming from fraud, scams, and misappropriation of funds.

Anti-financial crimes regulations require banks to enact robust risk management frameworks, including extensive KYC due diligence, integrated safeguards for AML transaction monitoring, and sanctions screening. The challenges of meeting these compliance standards with digital currencies have resulted in hesitancy of financial institutions to engage in crypto business due to the complexity of tracing transactions and measuring risk on the blockchain.

At the same time, all top US banks now have customers transacting in cryptocurrency through virtual asset service providers (VASP’s). As more consumers and institutional investors embrace cryptocurrencies, this need to support the growing customer base and address money laundering regulations will affect an even broader set of traditional banks, credit unions, and fintechs.

The need for effective solutions has never been greater, and that is why I am pleased to announce that FICO has entered into a partnership with Bitfury – a leading blockchain transactions analytics provider – to meet the needs of our clients.

The new relationship combines FICO’s industry-leading financial crime solutions with BitFury’s Crystal blockchain analysis, to help banks assess the risk of their clients’ crypto business at the onboarding stage, as well as monitor that risk on all active accounts. The unique combination of technology enables banks to fully understand and actively manage the risk-exposure from customers – individuals and corporations alike - that engage in virtual currency transactions. With rigorous KYC and AML controls in place, banks can expand their service portfolio into the fast-growing market of virtual assets, while managing crypto-related risks.

At the onboarding stage, banks will be able to gather a potential client’s information including their virtual assets and wallets. FICO’s KYC solution will then cross-reference against the Crystal blockchain analytics platform to obtain Crystal’s risk score, which is calculated based on the client’s transaction history with anonymous and de-anonymized sources.

Banks will also be able to apply the blockchain analysis to existing clients for ongoing monitoring. For instance, if the Crystal risk score changes due to suspicious transactions or activities on the darknet, the bank will receive alerts and can immediately begin more efficient and effective investigations.  With FICO Alert and Case Manager (ACM), further details from Crystal’s blockchain analysis will be visualized in an interactive and powerful UI to support investigators’ decisions. 

To hear more about my thoughts on cryptocurrency and financial crime, connect with me on LinkedIn.

To learn more about the FICO Financial Crimes Solutions, visit www.fico.com/anti-financial-crimes.

The Bitfury Group is one of the world’s leading emerging technologies company, to learn more, visit www.bitfury.com.