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New York’s top financial regulator advises banks to expand their use of blockchain analytics technology when dealing with cryptocurrencies.
In an industry letter to the Chartered Bank of New York and foreign branches operating in New York on September 17, the regulator noted that such tools could help institutions better manage risks associated with XI money, sanctions violations and other illegal activities.
Adrienne Harris, head of financial services, saidThis technology has been proven to be effective for licensed cryptocurrency companies,Banks that engage in digital asset business directly or through customer exposure to crypto activities should also consider adoption.
The department initially released guidance documents on blockchain analytics in April 2022 for companies holding state cryptocurrency licenses.
Since then, banks have shown “growing interest and exposure to cryptocurrencies” and similar safeguards are needed, Harris said.
Regulators recommend that banks use blockchain analytics to screen customer wallets, verify the source of encryption-related funds, monitor activities throughout the digital asset ecosystem, and evaluate counterparties such as digital asset service providers.
Regulators also encourage banks to compare the differences between expected and actual activities, use network-wide intelligence to conduct risk assessments, and weigh the risks of launching new cryptocurrency products.
The department stressed that these application examples are not exhaustive lists and that controls should be tailored to each bank’s risk preferences and operational characteristics.
Harris urges agencies to regularly update their compliance frameworks as markets, customers and technology develop.
The notice states:“Emerging technologies bring new, evolving threats, which require new tools to deal with them.“
The notice added that blockchain analytics technology could help banks protect their financial systems from threats such as terrorist financing and sanctions evasion.
The guidance document does not change existing state or federal laws, but highlights the regulators are pushing traditional banks to adopt the same risk monitoring standards that are long-term for licensed crypto companies.
