Crypto And Virtual Currency Risks
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The ABA/ABA Financial Crimes Enforcement Conference took
place January 11-13, with K2 Integrity Managing Director Gabriel Hidalgo, who leads the firm’s
Crypto and Fintech Advisory practice, leading an important
conversation on “Crypto and Virtual Currency Risks.”
Featured speakers were Pamela Clegg, Vice President of Financial
Investigations with Ciphertrace, and Jeremy Warren, the Deputy Head
of AML with JP Morgan Chase.
There are few topics facing financial institutions as urgent
– or as controversial – as cryptocurrency. This past
year, the virtual asset market exploded and entered the mainstream
economy and vernacular. According to the November 2021
President’s Working Group report on stablecoins (currency tied
to fiat), the current stablecoin market is worth nearly $130
billion, a showing of 20-fold growth over the last 20 months.
Crypto’s arrival as a legitimate asset has heightened the
urgency around establishing an accepted regulatory framework.
More questions than answers still swirl around crypto’s
security, privacy, and viability. The negative connotations and
stigma surrounding crypto, or just a lack of clarity, have made it
increasingly important to understand the risks involved. These
- Money laundering connected to illicit activities and corruption
is a constant concern, as well as that happening via transactions
on the Dark Web.
- Fraud looms large as well. Ransomware made headlines throughout
2021 with several industries experiencing major disruptions at the
hands of hackers. Meat distribution, oil and gas resources,
hospitals, schools, and modes of transportation were all affected,
providing a window into the havoc that can easily be wreaked. In
late 2020, the cryptocurrency OneCoin was revealed to be marketed
independently by blockchain or another means of verifying
ownership. The OneCoin data was stored in a single database which
was never materialized. It was all a lie, and millions were
- Regulatory concerns are at the forefront of any conversation
about crypto. Established players in the market welcome a level of
regulation, particularly given the legitimacy it adds for those
already operating above board. There is great anticipation that
change is coming, particularly with this administration, but the
pace isn’t placating critics. In a welcome bit of news, in
January, the SEC announced that it hired Corey Frayer, formerly a
Senate staffer, as a senior advisor focused solely on crypto
Even without steady regulations, financial institutions have
various options to try and mitigate virtual asset-related risks.
These can be in the form of tailored parties or third-party tools
that can report data and depict the firm’s transactional
integrity. The Office of the Comptroller Currency (OCC) has offered
guidelines to include crypto, modernize the banking industry, and
encourage innovation. Needless to say, there is more to unfold in
this landscape in 2022.
Unraveling the mysteries of the crypto universe is still a
challenge, but not an insurmountable one. With the introduction of
new products, an exploration of existing and emerging risks in the
marketplace, and concrete steps to mitigate those risks, crypto is
evolving into a topic that financial institutions can address with
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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