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If 2018 was a big year for cryptocurrency compliance, 2019 will be even bigger.
At Elliptic, we expect 2019 to bring rapid and significant changes in crypto regulatory compliance and the evolution of crypto-enabled crime.
From increased regulatory oversight to rogue state actors and tightening sanctions regimes, these are five major trends we think crypto businesses should be ready to meet in 2019.
1. Regulators will take the main enforcement measures
We think 2019 will be the year when regulators really take off the gloves and start imposing significant penalties for AML/CTF compliance violations in the crypto space.
We have already seen regulators take action in the US and Japan, and we expect regulatory action to expand to more countries and increase in size, frequency and severity. Regulators can also use coercive measures to clarify their expectations regarding regulatory gray areas.
Key takeaway for cryptocurrency business? Businesses that are not prepared to comply with the new regulations should not expect to be treated lightly in the year ahead.
2. Regulators will take a closer look at privacy coins
Anonymity-enhancing cryptocurrencies such as Monero and Zcash are known to play an important role in protecting user privacy. In 2018, privacy coins have also become popular among criminals.
Some regulators have already taken steps to address coin privacy risks, including preventing exchanges from listing privacy coins.
The pattern is likely to expand throughout 2019, with regulators continuing to restrict the use of privacy coins on exchanges or clarifying that enhanced due diligence must be applied where privacy coins are used. Some regulators may only allow privacy coins to be traded on exchanges with express permission and approval.
With the FATF and other watchdogs taking a closer look at the crypto space, we predict that regulators around the world will put privacy coins at the top of their agendas.
Companies in the crypto space will need to understand the liabilities and risks that come with handling these coins or when dealing with customers and other companies that use them.
3. Money laundering typologies will become more complex
In 2018, law enforcement agencies achieved some major successes in the fight against crypto-crime. But there has also been an increase in the volume of money laundering in the cryptocurrency space.
The crypto industry is constantly creating new products and services, many of which have exciting prospects for the future of finance. We expect 2019 to produce more in terms of compelling cryptocurrency innovation.
But as the number of innovations in the crypto world grows, so do the opportunities for criminals to exploit these new platforms.
Accordingly, we expect cryptocurrency money laundering typologies to deepen in complexity and scope, posing new challenges for compliance and law enforcement teams to identify and disrupt illicit behavior.
4. State actors will pose a greater threat
One of the most significant developments in the cryptospace during 2017 and 2018 was the emergence of state actors as users of – and abusers of – technology.
From North Korea engaging in crypto-enabled cybercrime, to Venezuela and Iran engaging in crypto-enabled sanctions evasion, to Russia engaging in espionage using bitcoin, rogue state actors are exploring how decentralized censorship-resistant technologies can enable their efforts.
We expect the use of cryptocurrencies by these actors to accelerate and deepen throughout 2019, and crypto companies that are unaware of this threat could easily find themselves exposed to malicious nation-states.
5. Sanction actions related to cryptocurrencies will experience a significant increase
The threat of rogue state actors will not go unaddressed.
Regulators will address these actors throughout 2019 with increasing urgency – in part by using financial sanctions to disrupt the use of cryptocurrencies as an alternative bailout for rogue regimes.
In late 2018, the US Treasury Department took its first sanctions action involving cryptocurrency addresses to target Iranian cybercrime facilitators.
We think that action was just the beginning. We expect to see more sanctions-related measures in 2019 and beyond. In response, we also expect that sanctions enforcement agencies will seek innovative ways to use sanctions tools to address cryptocurrency-related risks.
Crypto businesses will need to have tools that will allow them to identify and prevent potential exposure to sanctions violations.
The challenges we expect the crypto industry to face in 2019 may seem daunting, but they are not insurmountable. With the right tools, it is possible to stay one step ahead of cybercriminals and meet increasing regulatory demands while ensuring the responsible growth of the crypto industry.
At Elliptic, our AML and Forensics tools can help compliance teams, regulators and law enforcement navigate crypto regulation in 2019 and beyond.
Contact us to learn more about how we can help.
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