With the cryptocurrency industry becoming more and more popular, financial criminals are finding more ways to try to exploit digital asset platforms. Methods range from identity fraud or complete account takeovers to suspicious transactions or money laundering, all of which require effective detection and prevention measures to be in place.
Opting for the best crypto fraud detection services for your business is essential, and it’s about a lot more than simply spotting transactions that appear unusual. Companies will require a solution that supports them in finding financial crime risks, verifying customers, monitoring activity that seems suspicious, and maintaining strong anti-money laundering (AML) controls.
This is of particular importance for digital asset businesses, cryptocurrency exchanges, trading platforms, etc., and having an effective cryptocurrency fraud prevention system in place means it will be able to carry out a number of checks, including:
When the above processes operate through disconnected and siloed systems, compliance teams will often face delays and more administrative work, as well as a greater risk of overlooking suspicious activity.
With the digital nature of cryptocurrency, transactions can often take place across international borders and may involve multiple wallets, platforms, and jurisdictions. This can mean challenges for businesses when attempting to identify suspicious activity and the individuals behind it, but it also creates the opportunity for innovation and to improve on your current methods.
Effective methods of crypto fraud detection help businesses spot the risks before they cause too much damage, which could result in financial losses, regulatory concern, or reputational damage.
Exploitative measures criminals may use with cryptocurrency platforms include:
It’s a regulatory requirement for all UK businesses that operate within the scope of the Money Laundering Regulations to have the appropriate AML controls in place. By ensuring this, they are able to verify customers, understand their risk profiles and identify any suspicious activity.
The best examples of crypto fraud detection services combine the ability to verify customers, conduct financial crime screening and risk assessment, as well as having credible monitoring capabilities. Businesses need to look for crypto fraud detection tools that will help them move from more isolated checks to a more connected approach when it comes to fraud prevention and compliance.
A strong and thorough crypto fraud detection solution should support:
It may be the case that specialist blockchain analytics, AML platforms and account security need to all work together in providing comprehensive coverage, as not all providers will offer all of the above capabilities.
The main aim is to ensure that compliance teams are receiving the help they need in identifying potential risks earlier, and are able to investigate suspicious activity more effectively. This will result in making safer and more informed decisions about customer relationships.
Reliable identity verification has to be one of the most important features of effective cryptocurrency fraud prevention measures. It’s imperative that businesses have the confidence they need that customers are who they say they are, especially at the onboarding stage when it is taking place remotely.
When criminals are using stolen personal information, falsified identity documents, or synthetic identities to create accounts and gain access to cryptocurrency services, organisations need effective crypto fraud detection tools that will support digital verification processes for confirming identity, documents, and biometric checks. The aim is to identify these fraudulent techniques across applications before any accounts are opened.
For companies that are onboarding corporate customers, Know Your Business (KYB) checks can offer additional visibility when it comes to fully understanding company ownership structures and ultimate beneficial owners.
SmartSearch's KYC solution supports cryptocurrency businesses in verifying customer identities through a variety of methods, including electronic data sources, document verification, facial matching, and liveness checks. These methods support a more secure onboarding process while simultaneously reducing any reliance on manual verification processes.
Whilst identity verification is essential for businesses, a strong cryptocurrency fraud detection process should also take into account the risks associated with digital asset transactions.
Be aware of suspicious activity, which may involve unusually large transfers, the rapid movement of funds between multiple wallets, and even transactions using addresses that have been associated with financial crime.
Specialist blockchain analytics tools are good at helping businesses to assess wallet exposure, identify any potential high-risk transactions, and look into the movement of digital assets across supported blockchain networks.
When finding the right tool for your needs, businesses need to look into a few different aspects:
These capabilities are different from the usual customer identity checks and AML screening. Therefore, combining specialist cryptocurrency transaction monitoring with a business’s wider compliance controls is hugely effective when developing a more consistent, thorough and complete understanding of financial crime risk.
It’s crucial that crypto fraud detection services don’t solely focus on identifying customer identities and transactions, as there are far-reaching financial crime or regulatory risks that businesses need to consider.
Organisations should also screen customers against sanctions lists, politically exposed person (PEP) databases and adverse media sources, as these checks further help to identify potential financial crime risk factors.
Having a robust crypto AML screening solution means compliance teams can more easily review potential matches, identify and manage false positives and, where necessary, apply enhanced due diligence.
SmartSearch combines sanctions and PEP screening with adverse media checks, thereby helping cryptocurrency businesses readily assess any potential customer risk, from onboarding right the way through the business relationship.
With varying levels of risk, cryptocurrency customers and transactions are all different, meaning that effective crypto fraud detection services should operate a risk-based approach to customer due diligence.
There are many different factors that can influence the risk level associated with a business relationship. This includes:
Understandably, any customers representing a higher risk may be in need of additional checks to ascertain the true purpose of their activities, to understand where funds have come from, or to investigate any potential financial crime concerns. With a solution able to handle these checks in place, businesses will be equipped to spot risk factors, apply the appropriate controls and then escalate any cases that may need further review.
SmartSearch supports enhanced due diligence as part of its wider AML offering, meaning organisations can investigate any concerns and maintain consistent compliance processes.
For those businesses conducting manual fraud detection and compliance processes, it can be extremely time-consuming, especially for cryptocurrency businesses that are often managing a large number of customers and transactions across multiple platforms.
When systems are disconnected, this can often result in work being duplicated, delays when onboarding customers, and inconsistencies in how potential risks are being assessed.
By automating tasks, businesses find they can start to streamline the identity verification and screening processes for risk assessment, thereby freeing up specialist compliance teams to deal with the more complex cases that need their attention.
Integration can be a concern for companies when choosing crypto fraud detection services, as they will need it to work seamlessly with their existing tools for anything from customer onboarding systems to transaction monitoring tools and more.
API connectivity and configurable processes can help businesses reduce their segmented information and processes from a range of siloed systems, instead combining all information to improve efficiency, timescales, and consistency.
SmartSearch offers integration capabilities that enable cryptocurrency firms to connect identity verification and AML checks with their existing systems, supporting more efficient risk assessment processes and compliance management.
As is the case with most risk assessment processes, crypto fraud detection should not be treated as a one-off process. Circumstances and risk profiles can change once an account has been opened, so continuous checks are a must.
Individuals may initially present as low-risk; however, they may subsequently appear on a sanctions list, in adverse media checks, or they may start to show risk factors that demonstrate the need for further investigation.
Other issues to consider are that account takeover attempts or suspicious transaction patterns can also emerge, even after a successful onboarding.
It’s for reasons such as these that effective cryptocurrency fraud detection services should always support ongoing monitoring and provide timely alerts, equipping companies to identify these changes and respond accordingly.
It will depend on the service in question as to which capabilities are included; it may be that you require ongoing customer screening, wallet risk analysis, the ability to monitor transactions, or automated alerts as a key priority, so it’s important to ensure that these features form part of the tool’s capabilities.
SmartSearch's ongoing monitoring solution supports businesses needing to identify changes to customer risk profiles via continued screening against updated risk data. By combining this alongside specialist transaction monitoring and account security controls, companies will be able to provide a more comprehensive approach to identifying any emerging threats.
Those cryptocurrency businesses subject to AML requirements need to be able to demonstrate what checks have been completed, any risks that have been identified, and the ultimate decisions as a result.
This is why maintaining clear audit trails for customer verification, screening results, risk assessments, monitoring alerts, etc., with thorough reporting capabilities for all, is an essential consideration when selecting fraud detection services.
By having these capabilities in place, compliance teams are able to demonstrate how they have followed clear, consistent and risk-based procedures in order to provide the necessary evidence for supporting any internal reviews, regulatory enquiries or compliance audits.
If centralised reporting is in place, this can also help to reduce administrative work, making it easier to investigate previous decisions made or to see which areas, if any, need additional or improved controls in place.
Choosing the right crypto fraud detection services means finding a connected approach, one that combines identity verification, financial crime screening, risk assessment, transaction monitoring, and ongoing customer oversight, as opposed to standalone monitoring tools.
The most effective solutions should be able to identify risk factors, support onboarding, maintain clear records and reporting and to reduce manual compliance work.
SmartSearch helps cryptocurrency businesses strengthen their AML and fraud prevention processes through a range of abilities, including:
These capabilities can complement specialist blockchain analytics and transaction monitoring technologies, resulting in compliance teams developing a much more complete picture of customer risk.
Discover how SmartSearch supports cryptocurrency businesses with the help of streamlined AML and compliance checks, or, alternatively, you can speak to a member of our team in order to discover more about protecting your business from financial crime.