Impact of Crypto Transaction Monitoring Regulations

Will crypto transaction monitoring regulations impact crypto related businesses? Over the years, cryptocurrency companies and exchanges have improved their modus operandi which has made them more and more favored and popular among the users.

This has resulted in an increase in the number of crypto users exponentially all over the world.

As a result, different countries are now looking to regulate this environment.

Now, whether these regulations will do any good to the market and to the users in the long run is to be seen but it is certain that these regulations will have a notable impact on all those businesses related to crypto.

Far from certain or imprecise as the environment may be in the US, regulations on the crypto space will need these businesses to monitor all transactions closely.

They will also need to prepare Suspicious Activity Reports or SARs as and when they detect suspicious activity.

It is expected that such compliance programs will enable the businesses to minimize the inherent risks in crypto transactions.

These programs are well thought of and carefully designed with powerful Transaction Monitoring Software.

All the unique challenges in compatibility in crypto can be effectively overcome with the use of the innovative RegTech solutions.

Since one of the biggest risks of the crypto market is the inability to restrain and control blockchain movement, such solutions and regulations will ensure that the crypto businesses will be fully aware of what is happening on the blockchain.

They will have a clear understanding and be alert when they implement the proposed new regulations along with the existing transaction monitoring regulations.

All these will make regulation compliance much less painful for them.

Will Crypto Transaction Monitoring Regulations Impact Crypto Related Businesses?

Will Crypto Transaction Monitoring Regulations Impact Crypto Related Businesses

In order to know whether or not the current crypto transaction monitoring regulations will have any impact on the business, you are in the right place. This article will let you know about it all right from the fundamentals and beyond.

To start with, you should know about a few laws and Acts on which these regulations are formulated.

The main US law to detect, interrupt, and deter money laundering is the Currency and Foreign Transactions Reporting Act of 1970 or The Bank Secrecy Act called BSA.

According to this law, it is required that all regulated financial institutions maintain proper records of all cash purchases of negotiable instruments.

The law also requires them to file reports of all those transactions that are worth more than $10,000 and report any suspicious activity or transaction that may suggest money laundering or some other criminal activities.

In order to comply with the law, the financial institutions are allowed to use transaction monitoring systems that will help them to identify illegal activities and report them to the regulatory authorities.

This will help the law enforcement in a great way to track criminals.

In addition to that, there are also a few other benefits offered by a reliable transaction monitoring system. These are:

  • Get customized intelligence according to risk levels about a payments fraud
  • Improve quality of data as well as the architecture
  • Better time and work management by the compliance personnel
  • Automate risk scoring to reduce false positives
  • Reduce cost of operation
  • Get actionable ad accurate Suspicious Activity Reports
  • Maintain complete and precise audit trail
  • Share knowledge
  • Get instant notifications of suspicious transactions and stop them automatically
  • Test and reproduce rules in a superior sandbox environment and
  • Scrutinize accounts trading with each other.

Now that crypto is being accepted as a valid payment mode in several merchant outlets, the crypto related businesses need to make sure that their transaction monitoring systems, new or old, support the AML process adequately.

Also, with the growing use of crypto and its institutionalization, the FinCEN or the Financial Crimes Enforcement Network needs to update its guideline because these were specifically designed for fiat currencies.

On the other hand, according to the Travel Rule introduced in 1996, the financial institutions are required to pass specific information during any fund transfer to the next financial institution.

The people using, exchanging, and even administering virtual currencies were considered to be money transmitters by the FinCEN in 2013 and therefore they all will be subjected to the BSA in two specific situations such as:

  • When they admit and transfer a CVC or Convertible Virtual Currency and
  • When they accept buying or selling CVCs.

However, it was updated in 2019 so that the guidance could be applied to any business model dealing with CVCs and included any transfer of CVCs that is equal to or greater than $3,000.

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In such situations, the originator is required to send a set of transmittals to the financial institution receiving the transfer.

These transmittals should contain all the information of the transaction before and during it is made.

Therefore, with all these regulations already in place the FinCEN has compelled the crypto exchanges to maintain the records of all transactions made on these platforms.

This is in contradiction to the original objective of cryptocurrency – being anonymous.

It is expected that in the future FinCEN will impose further regulations on the digital assets so that all of them stick to the same type of regulations that are meant for the fiat currency.

Today, with the wide use of crypto with both retail and institutional investors involved in it, it is very important for the businesses related with crypto to understand the red flags in crypto transactions so that they can implement them successfully in their transaction monitoring process.

This will help them immensely while filing the SARs which will be most accurate and meet all the necessary regulatory requirements. It will also be successful in mitigating the risks of money laundering.

Crypto Money Laundering Characteristics

There can be several ways in which one can launder money and most of these are unknown to an average person.

It is for the benefit of the people at large, the Financial Action Task Force or FATF released a guideline in 2020 that entailed the specific characteristics of crypto money laundering schemes.

Some of the most significant red flag indicators that the businesses should look for include and are not limited to:

  • Transaction behavior – Any abnormal behavior in a transaction such as a hasty deposit into an account just opened and immediate withdrawal or high frequency pattern of transactions within a short period of time is a red flag.
  • Geographical risks – Transactions that indicate any removal from or moving crypto into high risk jurisdictions or countries should be suspected.
  • High risk crypto activity – There can be several such activities such as activities in and from Darknet markets, anomalous transactions covering a major part of a crypto activity, scams to OFAC or Office of Foreign Assets Control sanctioned addresses, and more and all are red flags.
  • Structured transactions – Any structured or multiple crypto transactions are also quite suspicious, especially if these are structured deliberately so that it does not cross the reporting threshold.
  • Anonymous transactions – Such transactions that involve exploiting the anonymity of crypto, which is a common process followed by the criminals, by using private coins, or by using proxies to make trades, and even trading on unlicensed exchange websites should be considered worthy for reporting to the authorities.
  • Insufficient customer due diligence – If any crypto transaction involves accounts that have been created without adequate CDD or Customer Due Diligence should also raise a red flag.
  • Money-mulling – Sometimes, customers who are financially vulnerable or are unfamiliar with crypto technology may be used as mules to make transactions on behalf of the bad actors and therefore these are also potential red flags.

This guideline was designed on different case studies and internal investigations.

In this guideline there are several red flag indicators included that are meant to help the businesses related with crypto to identify money laundering transactions and calibrate their monitoring measures.

Future Potential

Now it is time to know the future potential of the cryptocurrency transaction monitoring regulations.

Cryptocurrencies have been the priority of the US regulators for years now and the FinCEN director Kenneth Blanco said in September 2020 that the issues related to the cryptocurrencies are not thought about by the banks.

This is the main reason that these issues are never resolved and examining them will make it so apparent.

Just after two months, FinCEN issued an NPRM or Notice of Proposed RuleMaking.

The prime objective of it was to eliminate the anonymity of crypto transactions.

In this notice it was said that specific type of information regarding a crypto transaction of more than $10,000 of CVCs from or to any un-hosted wallet should be passed on to the authorities.

The proposed rule required the banks and Fintechs to monitor records for any such transaction of more than over $3,000.

A formal report for it should be made to the authority within 15 days, according to the rule.

The type of information that should be collected and reported includes:

  • The name and address of the customer
  • The type of CVC or LTDA transacted
  • The amount of such transaction
  • The date and time of the transaction
  • The assessed value in US dollars of such transaction based on the current exchange rate at the time when the transaction was made
  • The payment instructions, if any received from the customer and
  • The name and physical address of every party involved in the transaction.
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Along with that, the companies also need to send any form that is related to the transaction and is signed and implemented by the customer as well as any other information that may help in identifying the transaction, the accounts, the parties involved, and the extent.

The Secretary may also prescribe other counterparty information that is deemed necessary as a mandatory inclusion on the reporting form for such transactions that are subject to reporting.

Other Tools

There are different tools that the businesses can use to track illicit transactions of crypto.

First of all, using reliable and specific crypto focused AML software is necessary to make the transaction monitoring process a success.

A blockchain explorer tool can also be used for that matter. This is a piece of software provided by several vendors that uses blockchain node and API to import several data from a blockchain.

It then uses the database for arranging the data in a searchable format and presents it to the user.

There are several useful features of these services that will help you in compliance.

It comes with real-time and automated APIs. These APIs will carry out the Know-Your-Transaction testing for certified addresses, suspicious behavior patterns of transactions, Darknet activities, and more.

All these will be done on the basis of the collected and auditable data.

It will help in tracking data of thousands of blockchain units and crypto coins.

Since these tools typically come with a huge database with important information it will help significantly in eliminating money laundering risks.

These tools also help a lot in tracking and tracing transactions, flow of funds, data lineage, and crypto wallets that support most blockchain networks and liquid crypto coins. Sometimes these functions can help a business to recover stolen funds.

Finally, these services will also help in integrating the system with some of the most efficient and popular AML tools.

Implications to Crypto Related Businesses

There are several implications that the crypto transaction monitoring regulations would have on the businesses related with crypto and blockchain.

They will need to upgrade their crypto transaction monitoring systems according to the needs of the institutions to mitigate the risk involved in crypto transactions.

They will need to use the best possible AML software tools for that matter.

These businesses will also have to review the situations on a regular basis and choose the best tools to keep their system up to date to identify the AML risks most efficiently and quickly as and when a crypto transaction happens.

Apart from that they will also have to focus on updating their policies and procedures to run their business on the whole and also arrange for proper and regular training, recruiting the best suited staff and more.

The risk of not following the regulations and not making the necessary changes may prove to be very costly for these crypto-related businesses.

Typically, they can receive both criminal and civil charges. And fines can be imposed in millions of dollars for failing to comply with the Bank Secrecy Act.

Here are the most significant implications of crypto transaction monitoring regulations on crypto related businesses.

Latest updates:

The companies must be well versed with the latest updates made by the government regarding these regulations.

This is important in order to make sure that their business, their transaction monitoring systems, their business policies and procedure of monitoring crypto transactions regulations are compliant to the government needs.


All employees of the business should be well trained and educated about the crypto transaction monitoring regulations so that they know about the changes and also have proper guidance while implementing them in the crypto transaction monitoring systems.

Organizing regular workshops is necessary along with regular review of the structuring to ensure that there are no flaws in the system architecture and the job is compromised.

This will help the employees a lot because monitoring crypto transactions is not as simple and easy as ACH or regular cash transactions.


Apart from providing hands-on training to the employees of the business, it is also needed to educate them so that they have adequate knowledge about the basics of crypto transaction monitoring systems and above.

They should know well how exactly they should read and even decipher the information regarding a specific transaction as it is available.

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These are not simple text languages and therefore they should have adequate knowhow and be well versed with the crypto transaction vocabulary such as ‘Output address,’ ‘TX Hash,’ and more.

This will not only help them in identifying any illegal activity on the blockchain but also help in writing a Suspicious Activity Report most accurately by including all the necessary information and details in it for the Secretary, compliance professionals and investigators.


The businesses related to crypto should have adequate staff that is well trained as well so that they can efficiently handle a sudden influx of customers, transactions, and cryptocurrencies at any point of time.

It is also needed to file a SARs report within 30 days of detecting any fraudulent activity.

Therefore, lack of staff may not allow the companies to meet this deadline. This will not only increase the risks of being charged with a hefty fine but it will also result in damaging the reputation of the company.

Proper and adequate staffing is also required to update the crypto transaction monitoring systems as and when required without hampering the output of the business or putting activities on hold for the necessary update.

Alerts disposition:

It is very important to treat alerts globally and it is quite a challenge for the businesses to do so because the crypto transaction monitoring regulations and AML regulations of one country may be different from that of another.

In order to do away with such issues, the businesses need to deploy various environments in each region.

This will enable them to know the different laws and deal with them as well depending on the respective jurisdiction.

Also, they should also run a separate environment in parallel so that they can keep a track of the global alerts and respond to them accordingly.

Tools updates:

The transaction monitoring tools should also be updated by the businesses so that it is nothing less, if not better, than what the bad actors use for money laundering. They must also use the best AML monitoring and tracking software.

In order to choose the best software, the businesses should ensure that:

  • It creates scenarios and rules that are most appropriate
  • It should need minimal code writing or dynamic rule writing
  • It allows testing the changes to the rules if any with transactions in an advanced Sandbox Test Environment
  • It allows simulating the rules to select the best scenario
  • It can test and assign risk scores based on the given criteria set according to the age, profession, and income of the customers and
  • It can analyze accounts using features like Transaction Analysis or any other.

All these will help the businesses to deal with the real time alarms most efficiently and prevent any illegal transactions from happening and avoid penalties from the authorities for failing to comply with the crypto transaction monitoring regulations in place.

Future Outlook

You may wonder what the future of the crypto transaction monitoring regulations as well as the businesses that need to follow this regulation look like.

Well, crypto products and transactions are changing continually and therefore to keep pace with such changes is required by the crypto related businesses to change or update their existing transaction monitoring procedures and systems.

This is extremely necessary in order to mitigate the risks involved in making crypto transactions. It will also help the businesses to file the most accurate SARs.

Therefore, the crypto related businesses should choose the right and most advanced technology to upgrade their transaction monitoring system in order to identify the specific red flags of crypto transactions and report about the potentially suspicious transactions to the authorities.

Though the future of crypto transaction monitoring regulations as such is in doubt, the regulators will implement Anti Money Laundering regulations on all crypto coins for sure.

Therefore, there is a need for innovative and more comprehensive crypto transaction monitoring solutions.


The crypto transaction monitoring regulations, irrespective of the state at which these are now, will surely have significant impact on the businesses related to crypto. The article must have enabled you to know exactly how it will do so.