When I accepted a position as chief compliance officer for a cryptocurrency firm after working in traditional compliance institutions my entire career, I knew there would be a transition going into virtual currency and a mental shift into a different methodology.
Making the transition into this industry presents a challenge, but an incredible opportunity. The challenge lies in the fact that virtual currency is a worldwide currency. It trades across international jurisdictions, not just in the United States, and different countries have different opinions and regulations on it. However, the opportunity lies in the fact that it’s still a relatively new industry and many companies involved in it are still on the ground floor.
From a training perspective, there is a wealth of knowledge available on the Internet. In the United States, the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and Commodity Futures Trading Commission (CFTC) all have information on their websites about virtual currency, their stances, and general training information. You can also find information on various international regulatory websites. Because this is a new industry, most of the information is available in a more ad hoc format online and will require trainers to do a lot of the initial legwork.
My belief is that in the future, the SEC, FINRA, and other regulators will establish blanket rules and regulations around virtual currency. If your organization is planning to operate a platform that will offer trading in cryptocurrencies or initial coin offerings (ICOs), it is critical that you train your staff properly. Specifically, the focus should be on two critical components: anti–money laundering (AML) and know your customer (KYC).
Under the U.S. Patriot Act, institutions are required to screen any potential clients to ensure that they are not on or located in countries that either have been sanctioned or are on “watch lists.” Many firms who operate in a regulated environment have been sanctioned for systemic failures in their AML policies and procedures, and the penalties can be severe.
To stop this from happening, finance institutions need to create a culture of compliance and a strong training program. AML is especially important in the crypto world, as trading of these currencies has become an effective way for terrorist organizations, cartels, and other criminals to move “dirty money.” Screening any company and trader names is the first step to ensure the legitimacy of any potential customers. Information to your trainers on the importance of this will dramatically reduce (if not eliminate) any “bad actors” entering your platform.
I cannot stress enough the importance of having a good compliance process in place—which begins with training. The last thing you want is to allow a drug cartel masked as a shell company to move their bitcoin-concealed blood money through your organization’s platform because you didn’t have the right controls and training in place.