Crystal News | October 27, 2023

How Traditional Finance Know-How Shapes Crypto Space

by Rich Litman

Crystal Marketing Team

In our recent webinar Crystal’s Head of Compliance and Regulatory Affairs, Hedi Navazan sat down with Priscilla Adams, Group Director of Compliance at Bullish, Kristen Hecht, Deputy Chief Compliance Officer and GMLRO at Binance, and Tamar Latsabidze, Chief Specialist in the Division for International Sanctions’ Implementation and Inspection, and Offsite Supervision of the VASPs, Money Laundering Inspection and Supervision Department at National Bank of Georgia to discuss how traditional finance (TradFi) skills and expertise are shaping the crypto industry.  

 With a collective 50 years of compliance experience among the powerhouse panel, our experts were well-placed to discuss how traditional finance (TradFi) is influencing crypto. 

Here we pull out the key themes raised during the discussion. 

Transitioning crypto companies into financial institutions 

Kristen highlighted that part of the compliance role in the crypto and digital assets space is to help with effective of crypto companies into financial institutions, and with that comes great responsibility.  

To ensure this transition is successful it requires that the compliance function is balanced with the business size. As a result, the head of compliance for crypto businesses must be integrally involved in business strategy and must thoroughly understand the products and markets to manage risk. 

She underlined that, just as in TradFi, crypto companies need to have ongoing engagement with regulators and various stakeholders. 

This point was supported by Tamar who says that from the very start of the crypto regulation journey, the National Bank of Georgia (NBG) adhered to a data-driven approach, drawing upon guidance from reputable bodies such as the Financial Action Task Force (FATF) and other international organizations. It has engaged with the private sector to gain valuable insights and perspectives to ensure their views are considered – and to illustrate this, the NGB shared both the registration requirements draft and offsite supervision framework with the crypto sector, and feedback has been carefully reviewed and considered where possible. 

Priscilla noted that firms should match their entrepreneurial spirit with TradFi know-how and expertise. Licensed exchanges have invested heavily in building and maintaining credible Compliance departments, often hiring expertise from TradFi. Leverage the knowledge and experience of these professionals to support the applications the firm is pursuing. 

The role of blockchain analytics and AI  

Priscilla pointed out that in TradFi, and especially in her experience at a Tier 1 bank, one of the main challenges in compliance was the issue of unwieldy legacy systems that forced manual processes.  

Ironically, manual processes are still rife in the digital assets space even with new technology, albeit for different reasons.. The challenge in digital assets is that multiple technology solutions have often been built so rapidly to service a need they cannot communicate with each other. 

 “There are many manual processes in Tradfi as a result of legacy systems creating complex problems that are challenging to solve,” said Priscilla. “However, even in crypto, there are manual processes in place. Although digital assets employ the latest technology, these systems often do not talk to each other because they were developed quickly to bring a product to market. There is often a need to use manual workarounds including spreadsheets as interim solutions.” 

 Tamar added that despite this, new technology like AI and especially blockchain analytics tools are critical to crypto businesses to help monitor and mitigate existing and emerging risks whilst embracing innovation. It is part of registration requirements that before starting operations, the VASP is obliged to implement software (electronic system) that ensures automatic traceability that supports the detection of suspicious/unusual transactions. 

Same activity, same risk, same control 

Tamar highlighted that, as a regulator, the aim is to have a balanced regulatory approach on virtual assets. On one hand, it is vital to identify, address, and anticipate the key risks, including potential money laundering activities. On the other hand, this must be balanced by enabling and supporting infrastructure that allows the development of legitimate, innovative, and sustainable value-added customer propositions. When adhering to the principle of ‘same activity, same risk, same control’, it is critical to ensure that idiosyncrasies of the Virtual Assets and underlying technology is considered, as well as ensuring the risk-based approach is maintained so that the controls around Virtual Asset Services are balanced against the risks. 

Priscilla pointed out that a firm should be clear on its goals and the ROI of entering a new market. Licensing processes are lengthy, and the regulatory bar is often set just as high – or even higher – than it is in Tradfi. This is driven by IOSCO’s principle of “Same activities, same risk, same regulation” which has been adopted in many jurisdictions. 

Compliance principles are business enablers 

Kristen points out compliance challenges come mainly from criminals seeking to exploit global financial services, including crypto digital asset services. Therefore, she is working with her team to evolve Binance’s compliance controls to outpace illicit actors.  

She emphasized that compliance principles need to be business enablers and hopes to raise further awareness with regulatory and industry partners about the crypto industry to build trust and collaborate in this fast-paced environment. 

Investment in skilled and knowledgeable compliance teams for the crypto space is imperative to adequately manage unknown risks. Skill and experience should be viewed as necessary to help educate on compliance principles and demonstrate these grow a crypto business through understanding requirements for new jurisdictions and any potential risks related to new products and markets. 

Priscilla noted that a compliance professionals should think about what they can pull from a TradFi experience and help make a firm successful in the digital asset space. She noted that her experience included building capacity models similar to those in TradFi to explain the compliance approach to third parties. 

Greater cross-border collaboration needed 

Priscilla noted that regulators and international bodies have long recognized the need to mitigate crypto-specific risks associated with cross-border transactions and anonymity. Regulators worldwide have responded swiftly to prevent investors from feeling the impact of a similar downturn in the crypto market following the FTX collapse, and are taking action to add more safety measures to digital asset investments, although each body may have its own approach.  

However, as is the case in TradFi where calls for cross-border collaboration have long existed, it has become even more important within the digital assets industry to expedite this collaboration between jurisdictions, law enforcement agencies, and private and public sector partnerships to streamline and expedite global regulations. 

She pointed out that anti-money laundering and financial crime risk were the focus in the crypto asset space in the early days. But as recent events like the FTX collapse have shown, the focus is now moving to incorporate more traditional areas of regulatory risk, and cryptocurrency exchanges also have a crucial part to play in implementing client protection measures. 

The importance of continuous education and learning  

Lastly, all agreed that given the fast pace of innovation and development within the industry, continuous education and learning are vital for all stakeholders from regulators, crypto businesses, and enforcement to ensure businesses can sufficiently anticipate and plan for future risk. 

To learn how Crystal can help you transform your approach to compliance, book a call in with our team.   


The views and opinions expressed herein are strictly those of the speaker and do not necessarily reflect the position or beliefs of the respective organizations. Any content from this presentation/speech/document should not be quoted or reproduced without the prior written consent of the relevant individual. 

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