How Crypto AML Software Will Help Improve Compliance In Banks 

How Crypto AML Software Will Help Improve Compliance In Banks 

Integrating crypto AML software in banks and financial institutions for compliance will help them align with current regulatory standards. As new regulations are introduced globally, virtual asset service providers (VASPs) need effective cryptocurrency compliance solutions.

Crypto AML Software

As traditional banks and financial institutions are exposed to crypto-assets and all the risks involved, they need to integrate a crypto risk management system. The question remains, what are the available solutions. To align with current regulatory standards, banks and financial institutions must comply with Anti-Money Laundering (AML) compliance.

Also Read: Proof-of-Work VS Proof-of-Stake

To achieve this feat, banks and financial institutions need to monitor the risks associated with blockchain transactions effectively. Banks have different levels of exposure to cryptocurrencies. However, most of them are exposed in some way. Currently, there are two categories of banks exposed to cryptocurrencies:

  • Direct Contact

These are crypto banks, trust funds, and financial institutions that directly contact cryptocurrencies. They serve as custodians of digital assets for their customers. For instance, In Germany and the United States, it is now legal for banks to have a digital asset custodial license. Meanwhile, there needs to be an added level of due diligence, transaction monitoring, and profiling for financial services.

  • The Indirect Contact

They include banks and financial institutions that do not deal directly with cryptocurrencies. Rather, they allow Virtual Asset Service Providers to have accounts. These financial institutions must ensure that the funds coming into their bank accounts are “clean.” The funds must not be connected to any suspicious activity before being converted from digital asset to fiat. This is where the crypto AML software comes into play.

Before we go further, let’s have a look at what crypto AML software is.

What is Crypto AML Software?

Crypto AML software aims to detect and disrupt money laundering activities that often happen in three stages: placement, layering, and integration. In itself, Anti-Money Laundering is a comprehensive process, regulations, and rules put in place to cohesively combat money laundering, terrorism funding, and other financial crimes. According to the United Nations Office on Drug and Crime, at least $800 billion are laundered globally in one year. This is the equivalent of 2% of the global GDP.

Despite all the checks, measures, and compliance, the rising cases of financial crimes continue to be a global challenge. This has continued to expose the weaknesses and loopholes of the traditional finance system. Over the years, traditional banks and financial institutions have been fined for policy and reporting violations under Anti-Money Laundering regulations.

Netherland’s largest bank (ING Group) was fined $900M) for money laundering. Also, Deutsche Bank was fined $700M for inefficient Anti-Money Laundering processes. The Commonwealth Bank (Aussie FII) is to $700M fine for AML breaches. In the United States, the M.Y. Safra Bank was sanctioned by the U.S. Treasury Office of the Controller of the Currency for failing to report suspicious activity tied to crypto clients.

Despite the above-listed fines and many others not listed in this article, AML violations are yet to stop. This tells you that there is a need for a more holistic, efficient, and effective approach to tackle money laundering in traditional banks and financial institutions.

How Crypto AML Software Works

The cryptocurrency Anti-Money Laundering compliance software works as an automated risk profiler that records blockchain entity interactions. It also observes potential connections with other entities. The AML software depends on algorithms and behavioral patterns, and historical factors to develop risk profiles.

One of the many advantages of this solution is that banks can configure their monitoring systems to suit. The same principle applies to other service providers like cryptocurrency exchanges. Once you have configured the risk parameter, you can put alert systems in place. All transactions are monitored by the system 24/7. Therefore, the manual work needed to understand the origin of funds is minimized significantly. Also, most of the on-boarding and training time is minimized.

In today’s world, banks are no longer only monitoring fiat-to-fiat transactions; they now look into crypto-to-fiat and fiat-to-crypto transactions. Therefore, they need to work through the blockchain technology the transactions are built on. The major challenge for banks will be how to ensure data security with third-party compliance software. Banks could have hosted dedicated servers where all the data will be kept in-house on their company server.

Compared with traditional or paper AML procedures, crypto AML software is highly adaptable and can match the financial industry’s ever-changing dynamics. Although the benefits are huge, it will only be through active use by banks and financial institutions that we can fully understand the benefits and pitfalls of this technology. Like every technological innovation, testing will be the key to improvement.

The growing Adoption of Crypto services by Banks

Crypto assets are increasingly blending with traditional financial services and raising the AML compliance risks. Initially, banks were skeptical and reluctant to adopt crypto assets, but they have started to reconsider their earlier position. A good example is the J.P. Morgan Chase bank, which has launched its own digital coin. The coin is designed to make immediate payments using blockchain technology.

SBI Holdings, a subsidiary of SoftBank Group, entered into a joint venture with Ripple and other 61 different banks. This is evidence that traditional banks and financial institutions. At least 40 German banks applied for a new crypto custodian license that will enable them to provide professional custody services. In another development, Swiss private banking and wealth management group Julius Baer in partnership with Seba launched a digital trading and custodial service.

In the United States, banks like Simple Bank support cryptocurrency transactions. These banks also enable their customers to buy, sell, and invest in cryptocurrency. The National Bank of Canada is currently allowing its customers to buy cryptocurrency using their credit card.


As traditional banks and financial institutions adopt crypto assets, they need to integrate crypto AML software for compliance. Implementing robust AML analytics and intelligence tools will help banks fulfill their regulatory requirements and mitigate risks relating to crypto businesses. Kindly share your thought in the comment section provided below.




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