Source: cryptoslate

Translation: Blockchain Knight

New York's top financial regulator has recommended that banks expand their use of blockchain analysis technology when dealing with cryptocurrencies.

In an industry letter sent on September 17 to state-chartered banks and foreign branches operating in New York, the regulator noted that such tools can help institutions better manage risks associated with illicit money, sanctions violations, and other illegal activities.

Adrienne Harris, the head of the Department of Financial Services, stated that this technology has proven effective for licensed cryptocurrency companies, and banks that directly engage in digital asset business or interact with customers involved in crypto activities should also consider adopting it.

The department initially issued guidance on blockchain analysis for companies holding state cryptocurrency licenses in April 2022.

Harris mentioned that since then, banks have shown "increasing interest and risk exposure to cryptocurrencies," thus necessitating similar protective measures.

The regulator suggested that banks use blockchain analysis technology to screen customer wallets, verify the sources of crypto-related funds, monitor activities across the digital asset ecosystem, and assess counterparties such as digital asset service providers.

The regulator also encouraged banks to compare expected activities with actual activities, utilize network intelligence for risk assessments, and weigh the risks of launching new cryptocurrency products.

The department emphasized that these application examples are not an exhaustive list, and controls should be tailored to each bank's risk appetite and operational characteristics.

Harris urged institutions to regularly update their compliance frameworks as markets, customers, and technologies evolve.

The notice stated: "Emerging technologies bring new and evolving threats, which require new tools to address."

The notice added that blockchain analysis technology can help banks protect the financial system from threats such as terrorism financing and sanctions evasion.

This guidance does not change existing state or federal laws but highlights that regulators are pushing traditional banks to adopt the same risk monitoring standards that have long applied to licensed cryptocurrency companies.

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