The Complete Guide to Cryptocurrency and RegTech Solution

With the emergence of Regtech, the way fintech operates has undergone a fundamental change. Risk and compliance teams may now automate a huge part of the regulatory process.

Regtech solution implementation has its problems, but when mastered, it may save time and money on a large scale, maintain track of regulatory changes, and guarantee that the platform’s tech stack remains legal.

It comes as no surprise that RegTech solutions are starting to use contemporary technology to automate procedures like record keeping, given the quick rate of innovation in Fintech. While blockchain-based regtech solutions are uncommon in traditional banking, numerous fintech platforms have used them to enhance their KYC and AML procedures. Regtech can be used by cryptocurrency platforms themselves to ensure that they adhere to AML compliance rules.

We’ll go through the following subjects to help you understand how Regtech and cryptocurrency are related and how you can utilise them to revolutionise identity verification, transaction monitoring, and case management throughout the Fintech sector:

  • Banking and Blockchain
  • Blockchain and Cryptocurrency: How Regulatory Technology is Changing

Let’s first examine how blockchain technology can transform the banking sector before talking about Regtech’s use cases in cryptocurrencies.

Banking and blockchain

Several processes in traditional banking can be expensive and time-consuming. A lot of the procedural problems seen in banking can now be resolved thanks to the arrival of the blockchain.

Banks can obtain the data they need to speed up consumer transactions, from routine purchases to international money transfers, by integrating a blockchain system. The decentralized network provides FIs with the confidence that the data is secure and up-to-date while automating these operations minimizes the need for manual labor.

Here is a brief introduction to blockchain technology to help you understand how blockchains might enhance banking:

  • Blockchains are decentralized ledgers that can be made available to all FIs and pertinent banking industry organizations.
  • Blocks can store a wide variety of pertinent data, including official records of a customer’s financial history, non-financial information, and transactional data from their bank(s). With no requirement for a third party, this can assist banks in obtaining information for various due diligence procedures.
  • The data recorded on the blocks is immutable, and any significant updates to the underlying data are very immediately made available across the whole network, keeping the network current and correct.
  • Using a “hash,” which is the output of a mathematical method, every block on the network is cryptographically encrypted. The hash function will notice any changes to the network’s data and fail if they are made. This means that unauthorised manipulation or use of stored consumer data is impossible for fraudsters.
  • Banks can use the blockchain to build a system that provides real-time access to data, cutting down on the time and effort required to authorize transactions and finish complicated processes.
  • Furthermore, Smart Contracts, whose effectiveness is controlled by the same mathematical hash functions, can be utilized with the blockchain to automate the performance of repetitive activities.

In terms of financial services, crypto (and the blockchain) have an obvious place, especially when it comes to virtual banking and investment services.  ‍

Blockchain and Cryptocurrency: How Regulatory Technology is Changing

Many FIs have struggled with the manual work needed to maintain AML compliance and financial crime prevention. Regtech’s ability to automate these procedures has improved AML controls for fintechs. Blockchain technology will allow AML experts to further automate their processes.

Regtech needs access to pertinent KYC and AML datadata, as well as laws in order to function. A fintech’s compliance system can instantly access immutable data when blockchain is integrated.

Because of the time and effort saved, the Risk and Compliance teams are better able to focus on resolving regulatory compliance problems and expanding their core product offerings.

Here are several ways that cryptocurrency companies have enhanced their regtech by utilizing the blockchain.

1. Identity checking and KYC practises

To halt money launderers in their tracks, it’s essential to spot fraudulent behaviour when accounts are first created. Because of this, Fintechs are relying on identity verification services, which are frequently provided alongside Regtech solution. Their systems may access data sources that establish a user’s identification and, if compliant, automatically approve end consumers’ access to their services by incorporating KYC/KYB processes within their Onboarding Orchestration.

By comparing information provided by end users with secure, current data about those users on the blockchain and automatically executing smart contracts that approve account creation, a blockchain-based system can help verify identities in close to real-time, obviating the majority of manual verification requirements. Such identity providers can collaborate with Risk and Compliance infrastructure solutions to carry out BSA-compliant Case Management in the unlikely case of escalations.

2. Transaction Screening and Monitoring

Fintechs who have automated their fraud and AML activities with Transaction Monitoring and screening have found Regtech to be of great assistance. Rulesets are developed that specify how potential financial crime might manifest itself. Then, to find suspicious activity, these are performed in real-time against client transactions and event data.

The security and speed of automated transaction monitoring for crypto use cases can be improved with blockchain technology. All on-chain transactional information can be instantly validated thanks to the blockchain’s intrinsic transparency. Risk and compliance professionals might be called upon to investigate suspected fraud in the event of data irregularities. All other circumstances will result in a swift and secure transaction processing.

3. Record Management and Storage

The implementation of Regtech by some FIs has allowed teams to monitor situations of suspicious activity and preserve compliance by keeping and providing access to crucial documents. Teams still need to perform some manual effort, though, in order to execute an effective workflow.

Blockchain technology allows crypto firms to access safe data and be certain that it is current. The decentralised structure of blockchain makes it possible to access up-to-date KYC and regulatory data immediately. As a result, all relevant parties have instant access to the information and documents they need to comply with laws and effectively complete all processes.

It also makes it possible for self-executing contracts based on safe algorithms and generates an effective, user-friendly ledger of all records that cannot be changed.

4. Protection and Fraud Prevention

Although AML compliance is the most common use of regtech, the truth is that the software also aids in fraud protection and prevention, albeit primarily in an indirect manner.

By automating many of their processes across the client experience, fintech that use Regtech have expedited their fraud prevention tactics. This has enabled businesses to swiftly file SARs and other reports with regulatory agencies like FinCEN and goAML while also assisting them in stopping terrible actors from the usage of their services.

With cryptography, blockchains go one step farther in prevention. To prevent fraudsters from obtaining private information, data blocks are encrypted. Blockchains also demand exact data matching from block to block. Therefore, fraud experts can set up their systems to receive alerts when data that is inconsistent or that appears to be fake is used to create accounts or carry out transactions. This can speed up the fraud detection process and stop thieves from stealing or changing data from cryptocurrency users.

Final Reflections on Crypto and Regtech

Blockchain technology and Regtech integration could revolutionize the banking industry’s business procedures. It acts as a safe method of controlling a transactional system up until that point.

Cryptocurrency businesses have found it easier to stay on top of regulatory changes by using Regtech’s solutions (as well as improving their fraud prevention strategy). Brugu provides risk and compliance infrastructure that can help you advance your KYC and AML procedures if your risk and compliance team is wanting to enhance the platform for your cryptocurrency business.

Brugu Written by:

Brugu team contributes the time on blockchain research to gain knowledge and maintains consistency in implementing the best practices on development of software".The team develops decentralized business applications and blockchain technology integrated business solutions to transform and improve traditional business processes. Every obstacle to start blockchain business has to be abolished if we want to build a better and brighter business growth.

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