EY helps clients create long-term value for all stakeholders. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate.
At EY, our purpose is building a better working world. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets.
As digital assets grow in importance, financial institutions are embracing blockchain data analysis to mitigate risk – and remain compliant.
In brief
Growing exposure to financial crime using crypto warrants immediate action.
Blockchain data analysis empowers institutions to detect and prevent illicit activities.
The rising interest in CBDCs requires robust data analysis to manage risks and compliance effectively.
In this era of rapid technological evolution, the financial landscape is gearing up for the adoption of digital assets and blockchain technology. With new technologies come new challenges, particularly in the realm of financial crime and compliance. For financial institutions in Switzerland, staying ahead of the curve is of utmost importance, especially given the changes in global political atmosphere. How can they navigate the complexities of digital assets, ensuring compliance with recent regulatory measures while effectively combating growing exposure to money laundering, illicit activities and terrorist financing? The answer lies in harnessing the power of data analysis on the blockchain.
The increasing adoption of digital assets has exposed the financial industry to growing risks. Criminals exploit the pseudonymous nature of blockchain transactions, making traditional detection methods insufficient. As financial institutions in Switzerland face these evolving threats, data analysis on the blockchain is emerging as a powerful tool to protect their interests and maintain regulatory compliance.
Our team works to give you the benefit of our broad sector experience, our deep subject-matter knowledge and the latest insights from our work worldwide.
Globally, financial authorities have been quick to respond to the emergence of digital assets. The European Union (EU), China, the US and Switzerland have all implemented measures to mitigate risks and safeguard financial systems. The EU’s 5th Anti-Money Laundering Directive (5AMLD) now includes provisions on digital assets and wallet service providers, mandating financial institutions to carry out stringent customer due diligence when dealing with digital assets. Similarly, the United States’ Financial Crimes Enforcement Network (FinCEN) has clarified the obligations of digital assets businesses under the Bank Secrecy Act (BSA), emphasizing the importance of adherence to AML and KYC regulations.
In Switzerland, the Financial Market Supervisory Authority (FINMA) has been proactive in providing guidelines for the digital asset industry, fostering a conducive environment for innovation while upholding the integrity of the financial sector. However, these measures are only as effective as the means by which financial institutions analyze blockchain data to detect and prevent financial crime.
The power of data analysis on blockchain
Blockchain technology presents a unique opportunity for financial institutions to fortify their defenses against financial crime in the realm of digital assets. The decentralized and immutable nature of the blockchain offers a transparent and auditable ledger of all transactions, making it a valuable resource for data analysis. Some key benefits include:
The pseudonymous nature of blockchain transactions, which poses challenges for the verification of customer identities, can to a considerable extent be resolved when blockchain addresses are linked to real-world identities, thus turning the tide in strengthening KYC procedures.
Blockchain data can be used to unravel intricate transaction networks that would be nearly impossible to trace using traditional methods. By leveraging sophisticated algorithms, the flow of funds across the blockchain can be visualized and analyzed, identifying potential money laundering schemes or other illicit activities.
Sanctioned entities and darknet marketplaces continue to increase their use of digital assets and are a concern for risk management, including law enforcement. Traditional investigations are rendered inefficacious. However, blockchain data analysis enables the identification and tracking of suspicious transactions, transaction patterns and wallet addresses related to these activities, ensuring direct or indirect exposures to such events or entities can be identified.
Growing interest in CBDCs
Central bank digital currencies (CBDCs) have garnered significant interest worldwide as central banks explore the possibilities of digitalizing fiat currencies. CBDCs promise to improve financial inclusion, reduce transaction costs and enhance cross-border payments. However, their implementation comes with challenges, including privacy, security and regulatory compliance. Data analysis on the blockchain becomes indispensable in navigating the complexities of CBDCs while managing associated risks.
Summary
As financial institutions navigate the evolving landscape of digital assets and distributed ledger technology, the power of data analysis on the blockchain emerges as a decisive advantage. By embracing advanced analytics, financial institutions can protect themselves against growing exposure to financial crime through digital assets, ensuring compliance with recent regulatory measures. Furthermore, when CBDCs become a focal point for the financial industry, data analysis will prove invaluable in advanced risk management and in securing a seamless integration of digital currencies.
Acknowledgement
We kindly thank Joby Jose for his valuable contribution.
