Crypto Forensic Startups provide Regulatory & Compliance Platforms

2 min read

Regulation & Compliance have become a central theme in the new tech-driven global economy. Global regulators have been working on a different approach towards this challenge as move from KYC (Know your customer) to KYD (Know your data) models. Processes, Automation & Algorithms are the new metrics to look at rather than people. And while the financial authorities are having some kind of success with the new sandbox approach with the Fintechs, they are still perplexed with how to deal with Cryptos. While smaller jurisdictions like Malta have come up with comprehensive regulatory frameworks for Crypto/Blockchain projects with a lot of companies making the island their home base. Major countries have so far been unable to reach a consensus on how to deal with the issue, as is evident from the delayed decisions from the G-20 countries in the last two meetings. There is some hope emanating however, as France recently announced a single regulatory framework for Crypto-assets.

According to Reuters, the French government brought in a national level of a framework for Cryptocurrencies. The new financial sector law would allow Crypto trading businesses to set up shop in the country while getting official recognition in return for taxing their profits. The French Finance minister went a step further in trying to  persuade other EU countries to adopt similar regulations inspired by their model. The European commission like many other countries is still in the process of studying how best to regulate the Crypto markets with concrete regulation is expected until late 2019. Under the French regulatory proposal, companies behind issuing Crypto coins or trading platforms would have their business plans thoroughly combed to make sure they comply with AML/KYC regulations. The regulatory certification would protect the investors in case of outright fraud but would not protect them against any losses incurred.

The sticking point for the majority of regulators has been the notion that Cryptocurrency transactions are untraceable. Apart from countries now moving towards drafting comprehensive Crypto regulations, Startups are now rising to help law enforcement agencies help identify the source & destination of these “suspicious” cryptocurrency transactions. Two such prominent examples are CipherTrace & Chainalysis

Chainalysis software suites “Chainalysis Reactor” and“Chainalysis KYT” are specialized Crypto compliance & investigation products used by their clients which include Governments, Financial institutions & Cryptocurrency Exchanges. The company specializes in enhanced due diligence for tracing the flow of Crypto transactions among other services like identifying Cyber Threat Intelligence, Real-time compliance, Suspect Identification & adhering to Global Standards. The company came in the limelight after investigating the Mt. Gox cryptocurrency heist of 2011. The startup has since been working with institutions like IRS (Internal Revenue Service), to help U.S government fight tax evasion & money laundering. Major investors in the New York-based company include – Barclays Bank, Accel, Benchmark, Digital Currency Group, and Techstars Ventures, among others.

CipherTrace on the other hand is a Crypto forensics company which offers tools used specifically for tracing cryptocurrency transactions. Apart from this the startup also  develops cryptocurrency anti-money laundering & blockchain threat intelligence solutions. CipherTrace has been in the news recently after pocketing a high-profile partnership with Binance – one of the biggest Crypto exchanges by volume. According to the announcement, CipherTrace would help Binance raise the AML & compliance standards in line with the demands of the financial regulators around the World. Earlier in March, Malta’s regulator, the Malta Financial Services Authority (MFSA), announced it would partner with CipherTrace to better identify fraud and prevent money laundering and terrorism funding. The California-based startup has investors in the form of Neotribe Ventures, Aspect Ventures, Galaxy Digital Ventures, and WestWave Capital.

Another notable addition to the compliance platforms has come in the form of Securitize. This startup has the backing of U.S Crypto giant Coinbase. The startup launched Securitize Ready Program, which would allow companies to issue security tokens on its proprietary compliant platform. Current partners of the platform include Coinbase Custody, OpenFinance, Rialto Trading, CBlock Capital among others. According to the announcement:

“Securitize’s DS Protocol maintains compliance during secondary trading and enables automated features such as share buy-backs, dividends, voting, and more.”

Notable investors in the project include Coinbase Ventures, Global Brain, NXTP, OK Blockchain Capital, and Xpring. Securitize might have an important role to play with the regulation & compliance of digital securities with the explosion of STOs in the last few months. Startups like Chainalysis, CipherTrace & Securitize might not just be the future of Crypto Forensics but provide a platform for the development of comprehensive regulatory framework in the Cryptoverse.

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Faisal Khan Faisal is based in Canada with a background in Finance/Economics & Computers. He has been actively trading FOREX for the past 11 years. Faisal is also an active Stocks trader with a passion for everything Crypto. His enthusiasm & interest in learning new technologies has turned him into an avid Crypto/Blockchain & Fintech enthusiast. Currently working for a Mobile platform called Tradelike as the Senior Technical Analyst. His interest for writing has stayed with him all his life ever since started the first Internet magazine of Pakistan in 1998. He blogs regularly on Financial markets, trading strategies & Cryptocurrencies. Loves to travel.

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