With crypto adoption picking up speed around the world, so has regulatory scrutiny of the space as well as the use of crypto for illicit activity. To this end, industry players — from crypto businesses to FIs — need to enhance their AML/KYC approach to cater to the new, emerging risks and meet their regulatory obligations.
Today, Merkle Science announces a new “customer workflow feature” to better support compliance teams, allowing them to monitor suspicious activities at an end-user level. The FATF report on Virtual Assets Red Flag Indicators, which sets the global standard for behavioral-based AML, highlights the insufficiency of monitoring risks only at an address level. Crypto businesses are urged to closely monitor abnormal transactional activities of their users from associated wallets, thereby pushing for a more customer-based analysis.
Broadening the Scope for More Accurate Transaction Risk Assessments
Transaction monitoring has been held as the standard when it comes to managing transaction risks and fraud. However, address monitoring in itself isn’t sufficient as it provides a very narrow view of how an individual or entity is moving funds. Merkle Science’s “customers’ workflow feature” enables monitoring at an end-user level. In the case of users having multiple addresses registered to their names, compliance teams may better assess risk matrices attached to a user’s profile and take a “holistic view” of all the wallet addresses associated with the user along with the transactions attached to them.
With the new feature, the compliance officer, through his internal records, has an aggregated view of the cluster of addresses attached to the customer. Similarly, our customer tab — with its easy-to-use interface — enables our clients to monitor their customers across all types of currencies.
Though the easiest way to use customer view is through an API, the customer view feature also supports manual file uploads. An API integration facilitates the screening of customers’ risks on a real-time basis. The API integration automatically updates all the incoming deposits and withdrawals on an address-by-address basis, thereby giving our clients a 360° view of their users’ current holdings as well as previous transactions. Merkle Science’s proprietary behavioral rule engine also works on an aggregate level so that all of the rule engine’s features can be applied at the customer level.
Our customer-centric approach allows the crypto business to tailor the tool based on the risk thresholds set up by regulatory bodies across different jurisdictions. This customer-focused approach is especially beneficial when in situations such as when a criminal would try using multiple currencies to move funds. With the customer view, the totality of all fund movements will be assessed and alerts will be generated should certain rules be breached, thereby identifying individuals who would have otherwise stayed under the radar
Customer Flow Feature Brings Us One Step Closer to True Behavior-Based Risk Monitoring
Criminals are now taking greater steps to obfuscate their source of funds and are concealing transactions that don’t originate from known criminal addresses. Merkle Science’s mission has been to support crypto businesses’ transition beyond the blacklist by proactively monitoring transaction behavior at an end-user level in combination with monitoring for suspicious behavior generated from potential criminal wallets that are not listed on public or private databases.
This update places blockchain analytics in a pivotal role in the lifecycle of a transaction, allowing us to provide our clients with enhanced monitoring solutions. With greater user oversight, compliance officers will soon be able to take action — such as putting transactions on hold — in case of suspected illicit behavior.
Furthermore, with the crypto landscape maturing and regulators introducing new regulatory proposals to strengthen crypto anti-money laundering frameworks, we expect more regulations like the Travel Rule to be enacted over the years. With a customer-first workflow, Merkle Science can ensure the smooth transition of the end-user experience even as we scale our offerings to meet new guidelines.
For current customers, Merkle Science now supports an Advanced View which can be toggled on and off from the settings option in the UI. The customer tab becomes the central entity in an Advanced View, and transactions get replaced by deposits and withdrawals. All additional features like web sentiment analysis, behavioral alerts, direct and indirect exposure, transaction, and address level detailing remain the same in terms of user experience.