Amidst the uncertain regulatory trends and heightened risks in the cryptocurrency market, what measures are various industry players taking in response?

How VASPs and related institutions provide dual protection against money laundering and user security

This article is provided by KryptoGO

Given the increasing financial risks at home and abroad in recent days, domestic and foreign regulatory authorities are working together to jointly address the impact of the industry's transformation

Amid the global trend of financial regulatory development, both financial institutions and fintech startups are facing numerous risks and challenges. However, as financial technology advances, regulatory technology emerges in tandem, creating many new business models and development opportunities globally. The "2022 Taiwan Financial Technology Regulatory Trends Forum" on November 9 invited international regulatory technology vendors, domestic industry players, anti-money laundering associations, professional lawyers, and accountants to participate, with hundreds of online and offline viewers actively joining.

KryptoGO, a domestic financial regulatory technology startup, collaborates with international giants Dow Jones and Jumio to provide automated regulatory technology solutions for businesses at home and abroad. This forum was co-hosted by KryptoGO, Dongxi Technology, and MuckerLab, and was co-hosted by KryptoGO founder Yao-Wei Ou and Dongxi Technology General Manager Zeng-Wei Zhao.

The first forum's theme, "International Trends and Trends in RegTech, How to Comply with Evolving AML Regulatory Standards," featured Sharon, Asia-Pacific Risk and Compliance Officer at Dow Jones, who came from Hong Kong to participate. Other regulatory technology service providers such as Jumio and Chainalysis, as well as the founder of the Taiwan Anti-Money Laundering Promotion Association, discussed how businesses can adapt to the latest international regulatory trends and continue to provide corresponding compliance solutions.

The Taiwan Anti-Money Laundering Promotion Association shared that global spending on regulatory technology is estimated to grow from $68 billion in 2022 to over $204 billion by 2026, accounting for over 50% of total compliance expenditures. Cryptocurrency exchanges and the gambling industry provide significant opportunities for regulatory technology development, continuously disrupting regulatory regulations in emerging industry sectors. Regulatory technology providers must continue to offer verification services sufficient to identify compliance and expand their service scope beyond traditional finance. The focus of the Financial Action Task Force (FATF) remains on "balancing customer experience and regulatory compliance," "the impact of continuous monitoring on eKYC maturity across different institutions," and "technology-driven compliance approaches leading strategic initiatives."

Dow Jones, with 22 years of compliance service experience, focuses on precise information collection to provide businesses with a variety of risk-matching data sources, including data collection in over 200 regions in 68 languages and complete matching data that complies with the U.S. Office of Foreign Assets Control (OFAC) 50% Rule (*companies controlled by sanctioned individuals holding 50% or more).

In the identity verification aspect of regulation, eKYC service provider Jumio shared that from the past conservatism of financial institutions and regulatory authorities towards digital verification, it has now become widely accepted in the market due to its feasibility in terms of security, user experience, and risk management. Chainalysis, which has been tracking coin flows since 2014, assists law enforcement agencies in searching and tracing incidents such as hacking, ransomware, and fraud—for example, when the largest U.S. oil pipeline operator was attacked and extorted by a hacker group in 2021, law enforcement successfully helped recover $2.3 million.

The challenges faced by startups and financial institutions under changing trends and regulations, and the future direction

The second forum's theme, "Regulatory Challenges and Risks Faced by Startups and Financial Institutions," featured domestic players ACE Elite Exchange, Fansi, and lawyer Quandi Xiong, who has been involved in cryptocurrency legal issues for many years, discussing the challenges and experiences that businesses face under market changes and our country's regulatory laws.

Regarding user risk management, exchanges must balance maintaining a moderate flexibility for industry development and user experience under the trust of stakeholders. The compliance manager at ACE also shared that due to the innovation in business models, without sound regulatory policies, whether in customer service or the design of derivative financial products, continuous collection of international cases, industry experiences, and expert consultations are needed to provide a more comprehensive and compliant operation. Lawyer Xiong also mentioned that in the cryptocurrency market, many products and services analogous to traditional finance, regardless of whether they are defined as commodities, currencies, or securities, inevitably move towards regulatory acceptance in terms of liquidity and value-added pathways.

As a music NFT issuance platform, Fansi is one of the few early service providers in Taiwan that complies with regulatory standards. Its founder, Tai-Gu Chen, stated that the original intention of businesses is to continue providing innovative products and services to customers without violating the law. However, from the business perspective, they also hope that regulatory authorities will take an open attitude towards emerging industry sectors, actively provide guidance, and promote progress in the industry ecosystem.

Practical sharing of VASP anti-money laundering operations through obtaining declarations, actively assisting in the popularization of anti-money laundering education in Taiwan

The third forum's theme, "Practical Sharing of VASP (Virtual Asset Service Providers) Compliance Declaration Application," featured several practitioners who have completed or continue to assist virtual currency operators in applying for our country's compliance statement, including Hengye Law Firm, Yunchieh United Accountants, Bitot Group, and the Taiwan Virtual Currency Anti-Money Laundering Association.

As one of the first groups of operators to obtain compliance declarations after regulations came into effect, the Bitot Group's various companies have completed applications this year. The group's legal and compliance manager mentioned that the review process is becoming more rigorous, and operators often encounter difficulties such as "how to know if internal controls are effective when not yet operational?" and "how to provide auditing without relevant records?" Professional communication with accountants is necessary to assist.

Representing the Bitcoin and Virtual Currency Development Association, a lawyer from Fruit Shell Law Firm pointed out that aside from the AML compliance-related regulations, many issues arising from the virtual currency industry, such as cybersecurity, have not been clearly implemented by relevant authorities. AML compliance, in line with the international FATF trend, is just one of the important focus areas. In the practical implementation of AML compliance, different transaction patterns require different monitoring methods, so adjustments must be made in the establishment of internal control processes by operators.

From the perspective of the auditor's verification of the operator system, Yunchieh United Accountants mentioned that operators are more prone to overlook the costs of compliance and the completeness of education for internal employees regarding processes, execution, record-keeping, and future audits.

Finally, the chairman of the Taiwan Virtual Currency Anti-Money Laundering Association stated that the association will continue to actively assist in the popularization of anti-money laundering education in Taiwan and promote the latest CCAS (Certified Crypto asset Anti-financial crime Specialist) certification to provide practitioners with a continuous learning and exchange environment on the compliance journey for virtual asset service providers.