2023's challenges and opportunities in crypto

Get an insider's perspective on the latest developments in the fast-moving world of cryptocurrency! LexisNexis® Risk Solutions’ Marc Temple explores the top challenges and opportunities facing this exciting market.

I think it’s the global regulatory obligation and multi-jurisdictional regulations that are coming to the forefront. We know that the UK is putting together a new regulatory framework for VASPs and other digital asset firms. We also know that one of the problems cryptoasset firms are contending with is being able to navigate multi-jurisdictional regulations and obligations in an agile way. They want to become global. It’s a global market opportunity with a global customer base. They need to understand what their obligations are and what the regulatory requirements are in every market, so they don’t fall short.

I was very surprised to see from the feedback the UK government gave around recent applications from new cryptoasset firms, a distinct lack of a proper, formalised risk-based approach to things like money laundering and counter-terrorist financing. You’d think with global AML regulations going back over a decade, these firms would be able to have a suitable approach and ensure they have the provisions in place for that.

A lot of the feedback pertained to inadequate risk-based approaches for money laundering and counter-terrorist financing not having the right provisions for transaction monitoring. That’s both on the fiat side and on the crypto side, using solutions available on the blockchain. That was surprising, given all the information and experience from the traditional financial space available.

One of the key things – and a bit of a paradigm shift that we are seeing, especially on the retail investor side – is the shift away from centralised exchanges to decentralised exchanges. You only have to look at the last six months or so in the industry to see a number of centralised exchanges going out of business for a number of different reasons. I think we are seeing a bit of a mental shift for the crypto native folk away from centralised finance onto decentralised exchanges.

Another opportunity is the level of investment coming into this industry. I read only this morning that there is a single blockchain DeFi incubator that has been responsible for 24% of investment into new blockchain startups. The level of investment coming into these new protocols, and the new applications for crypto assets and blockchain technology, have grown exponentially and we will see this push throughout 2023 and beyond.

I think there are a lot of lessons that cryptoasset firms can learn from process inefficiencies inherent in traditional financial services. If we look at the provisions, they need to understand who the customers are, make sure they have the right information, and understand the risks associated with the customer, based on their identity, their risk profile, or their transactional behaviour.

I think if there is one thing they can take from the traditional finance space, it’s having a more unified consolidated approach. For so long, traditional financial institutions have relied on multiple vendors and had a very siloed, fragmented approach to onboarding, financial crime risk mitigation, and fraud prevention.

One of the things they can learn from this is to operate in a much more agile way, looking at a more unified approach that brings everything together in a seamless workflow with reduced friction for the customer. They can also make sure that they are ahead of the game and not opening themselves up or being susceptible to risk.

Our ethos as a business and a platform solution is that we cover all the obligations and regulatory requirements that cryptoasset firms need to abide by on a global scale.

Where we already have provisions and a fantastic partner ecosystem for identity, fraud, and AML solutions, we will also be expanding into the crypto world even further, looking at provisions for blockchain analysis, travel rule implications, and many others. Our goal is to provide a truly holistic and agile approach to customer risk management, ensuring clients abide by all appropriate multi-jurisdictional laws, regulations, and obligations, wherever they operate.

About Marc Temple

After more than a decade working in compliance with well-established global organisations, Marc is now a key global business development director at LexisNexis Risk Solutions. Marc delivers customer onboarding and regulatory compliance solutions to sectors specialising in decentralized and alternative finance.

About LexisNexis® Risk Solutions

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare, and government.