Is Crypto the Future of Money?

Regardless of their involvement in the financial services industry, anyone paying attention to the news lately will know that cryptocurrencies are making headlines.

As the worldwide economy becomes less predictable, regulatory agencies are wondering whether cryptocurrencies could be used to transfer money if other assets become subject to international sanctions, likening crypto to gold. According to an early March article from CNN Business, the price of gold has spiked and could surpass its all-time high before long, while bitcoin is trading 4% higher.

Crypto has also been in the news because of an executive order recently issued by President Joe Biden. The order requires the Department of the Treasury, the Department of Commerce and other agencies to look into and report on the “future of money,” specifically relating to cryptocurrencies.

As part of that order, those agencies need to outline the benefits and risks of creating a central bank digital currency (CBDC), informally known as the digital dollar. The digital dollar can be thought of as the Federal Reserve’s answer to crypto. It would act like cryptocurrency, with one big difference: It would be issued and regulated by the Fed.

How would this work? One idea involves government-issued digital wallets to store digital dollars. While the U.S. is not likely to take imminent action on creating a CBDC — Congress would need to approve it — it would not be a big leap to sell this concept to the American public. The Federal Reserve reports that cash use accounted for just 19% of transactions in 2021. Digital payments, meanwhile, are up. According to McKinsey’s 2021 Digital Payments Consumer Survey, 82% of Americans used digital payments last year, which includes paying for purchases from a digital wallet like Apple Pay. Using digital dollars, in a similar kind of digital wallet, wouldn’t be all that different. The future state of digital currency and the current state of online payments, credit cards, buy now, pay later purchases and more are, in effect, exchanging bills and notes for 1s and 0s.

What this means for financial institutions is a need to focus on education and information, and an ear toward new regulations.

Educating account holders will be vital. Pew Research reports that 86% of Americans are familiar with cryptocurrencies, while 16% say they have invested. The reason more people haven’t invested? They don’t fully understand it. This is a huge growth opportunity for banks to partner with account holders as a trusted voice of information, within the confines of current regulations.

  • Use account holder transaction data to spot trends in cryptocurrency purchases within their ecosystem and inform them on how to communicate and educate account holders.
  • Task an employee to become the in-house cryptocurrency expert, in the ins and outs of crypto’s current and future state.
  • Develop a section on the website with information for account holders.
  • Create an email campaign that shows account holders a history of investment product adoption with links back to the bank’s website for resources about the latest news on cryptocurrencies. Even if the institution doesn’t facilitate sales, it is important to set the institution up as a trusted resource for industry data.

Crypto fraud is rampant because the majority of people still aren’t quite sure how crypto works. That’s why it’s so important for financial institutions to be the source of truth for their account holders.

Further, fintech is already in the crypto arena. Ally Bank, Revolut, Chime and others are working with their account holders to help facilitate crypto transactions. And even established institutions like U.S. Bank are offering cryptocurrency custody services.

Data will be an important key. Pew Research reveals that 43% of men ages 18 to 29 have invested in, traded or used a cryptocurrency. But what does that mean for your specific account holders? Look closely at spending data with a focus on crypto transactions; it’s an extremely useful metric to use for planning for future service offerings.

The role that traditional financial institutions will play in the cryptocurrency market is, admittedly, ill-defined right now. Many personal bankers and financial advisors feel hamstrung by fiduciary responsibilities and won’t even discuss it. But U.S. banking regulators are working to clarify matters, and exploring CBDC, in 2022.

Is cryptocurrency the future of money? Will a digital dollar overtake it? It’s too early to tell. But all signs point to the wisdom of banks developing a crypto and CBDC strategy now.

Five Trends in AML Compliance in 2021

This year has been a significant and active one in the world of anti-money laundering (AML) compliance. Digital payments are taking the world by storm, regulators are cracking down on new types of fraud and the U.S. government has pledged to be more proactive in enforcing AML laws.

Regulators have not been idle, issuing fines to banks around the globe totalling $10.6 billion in 2020. But it hasn’t been enough to deter fraud rates. What can banks expect for AML regulations for the remainder of 2021, and how can they prepare? Here are the main trends in AML compliance of 2021, and their impact on financial institutions.

1. Much-Needed Updates From Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act of 2020 (AMLA) is arguably the most transformative AML law in a generation. AMLA amends the Bank Secrecy Act (BSA) for the first time since 2001 and modernize it for today’s money-laundering and fraud climate. For several years, regulators have focused on modernizing AML compliance programs at banks, encouraging innovation and improving the coordination and transfer of information between financial institutions. AMLA could have a significant impact toward these goals when coupled with regulators’ ongoing efforts.

Financial institutions are now required to have AML officers who can quickly incorporate reports into their transaction monitoring programs. It brings even more pressure for banks to modernize their operations through better technology. AMLA also allows the U.S. to subpoena records related to any account at foreign banks that maintain correspondent accounts in the United States, enabling the regulators and the government to fight money launderers who seek to take advantage of the lack of communication between countries to commit international crimes.

2. Tightening UBO Laws
Under the AMLA, the Financial Crimes Enforcement Network (FinCEN) requires certain companies to file information on the beneficial owner of the reporting company, along with the identity of the person who has applied to form or register the company. This is part of the overarching trend of gathering more information on your customers.

Customer due diligence is now a more complex and lengthy process to gather the right types of information. This goes hand in hand with the Corporate Transparency Act (CTA), which requires financial institutions to verify customer information against FinCEN’s Ultimate Business Owner (UBO) registries. Verifying UBO information can be costly and time-consuming, especially since most countries have not published public ownership registers.

3. Better Software, Better Tech
Regulators around the world are pushing banks to use better software and incorporate emerging technologies. As financial fraudsters get more intelligent with their approaches, the only way for banks to fight back is with technology that matches those capabilities and can adapt to new threats. Compliance teams are increasing in size and expense. The benefit of better software is that many of these processes can become automated, which helps keep costs down.

4. Crypto Regulation
The novelty of virtual currencies allows fraudsters use them to their advantage while escaping regulators’ purview. According to Chainanalysis’ 2021 Crypto Crime Report, 270 cryptocurrency addresses received $1.3 billion in illicit digital coins in 2020.

How is the U.S. approaching the regulation of cryptocurrencies? Several agencies have been involved with the regulation of virtual assets, including the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission and FinCEN. From an AML perspective, the biggest change has been to require cryptocurrency exchanges to complete a Know-Your-Customer (KYC) process for every customer.

5. SAFE Banking Act
The SAFE Banking Act aims to normalize cannabis banking and reduce the risk of liability for banks that offer services or loans to MRBs (marijuana-related businesses). To date, the SAFE Act has not been passed into law, and payment processing remains a confusing space for banks and MRBs alike. Under the administration of President Joseph Biden, however, there is hope that the industry will see a marijuana policy that reduces confusion at the federal level.

What are the overarching trends this year? AML laws are encouraging financial institutions to be more transparent, implement better technology and build more comprehensive customer profiles. Banks that want to be proactive will need to ensure their policies are up-to-date with the new regulations, their infrastructure can integrate more data sources and their KYC processes are automated, while also offering a great customer experience.