Know Your Transaction: What is it and why Virtual Asset Service Provider (VASP) should care about it?
Businesses around the world rely on a variety of data and technology solutions to screen customers and transactions for illegal activity. Anti Money Laundering (AML) is a catch-all term that broadly encompases a range of policies and processes, including Know Your Transaction (KYT). Different industries, governments, and regulators work together to determine best practices and set legislation to enforce minimum compliance standards.
While KYT can ostensibly be performed on many types of transactions, this article discusses the surveillance of Virtual Assets (VA). A Virtual Asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Thus, a Virtual Asset Service Provider (VASP) is any person or company who on behalf of another natural or legal person conducts activities or operations in exchanging (either between Virtual Assets and fiat currencies or between one or more forms of Virtual Assets), transferring, or providing custodial services or financial services relating to issuance and sale of Virtual Assets (1).
“Know Your Transaction” refers to the internal policies, procedures and controls that VASP companies must perform to detect potential money laundering and terrorist financing activities of their customers. All movements of Virtual Assets in and out of their clients accounts must undergo surveillance to build an understanding of the client's transaction activity. When an unusual or suspicious transaction is detected, it needs to be red-flagged for further investigation.
Suspicious transactions should always be reviewed in the context of the customer’s historical financial activity and whether the customer exhibits additional risk indicators related to geography, industry, and product type. When a compliance team suspects, or has reasonable grounds to determine that an unlawful transaction has been committed, the company is obligated to report it to the local authorities.
Regulators have been clear that moving forward VASPs will have to comply with more demands for compliance(2), rather than less. Investing in a compliance software that helps you orchestrate and create a sustainable compliance architecture can save companies the hassle of continually developing, improving and maintaining their own solution to clear ever evolving regulatory hurdles.
When selecting a KYT solution, companies should look for software that provides a holistic integration approach and is designed for compliance professionals. VASPs should pay close attention to the following criteria:
▪ Is the solution easy to use?
A well designed platform should fit the workflow of the compliance team and have a clean, crisp user interface.
▪ Does the solution ease the manual workload of the compliance team?
A well designed compliance solution will help to decrease the workload of the compliance team by highlighting possible problem areas and high risk cases and providing valuable insights into the data, allowing the end users to focus their efforts on high priority cases and reducing the manual work required.
▪ Will the solution ‘talk’ to my system?
Look for a solution that offers an API (Application Programming Interface) that can create a seamless user experience by updating itself in real time.
▪ Does the company publish updates and development roadmaps?
Compliance, especially in the Virtual Asset space, is still maturing. Whatever solution you choose; make sure it is adaptable, flexible and scalable.
▪ Who is behind the solution?
Many KYT options on the market were designed and built by software engineers and data providers. A solution built by compliance specialists ensures the highest level of workflow intuition and the highest degree of regulatory fidelity.
Regulatory violations sit with the VASP, and do not fall on their technology or service providers, which is why choosing a high quality, tested and proven solution is critical. Only rely on a system that follows the highest AML/CFT standards and is adaptable enough to conform to any additional jurisdictional regulations.
Ospree is a cloud platform that operates as Software-as-a-Service, offering powerful, integral B2B solutions to create a full-stack compliance ecosystem. We serve customers in the digital-asset industry, empowering teams to comply with complex Anti–Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements at the global and local levels. Designed by compliance experts, the platform provides intuitive modules to automate and orchestrate compliance processes, including whitelisting, monitoring, case management, smart-rules, and reporting.
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(1) See "U-Z - Financial Action Task Force (FATF)." https://www.fatf-gafi.org/glossary/u-z/. Accessed 22 Sep. 2020.
(2) See "FinCEN Guidance, FIN-2019-G001, May 9, 2019." 9 May. 2019, https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf. Accessed 22 Sep. 2020.