Financial institutions can no longer apply traditional financial crime frameworks to digital assets without adaptation. Industry practitioners argue that success depends on integrating fraud, sanctions, and AML controls into faster, more collaborative ope
Financial institutions should stop
treating digital assets as a niche business and instead redesign financial
crime controls for a future where digital and traditional assets coexist.
That was the central message from
senior practitioners during a recent industry discussion, who argued that
institutions must rethink people, processes, and technology if they are to
manage fraud, sanctions, and anti-money laundering risks in an increasingly
digital financial system.
The panel, speaking during a Payment
Forum session at CeFPro’s annual flagship Risk Americas conference earlier this
year, agreed that many of today's financial crime frameworks were developed
around settlement cycles that allowed institutions time to investigate alerts
before transactions became final.
That assumption, they concluded, no
longer holds.
The senior executive responsible for
digital financial crime advisory at a major global investment bank explained
that digital assets fundamentally change the relationship between speed and
control.
"The main core fundamental
problem," she said, "is, how do you deal with speed versus control
effectiveness to mitigate the risk?"
Unlike traditional settlement
windows, digital asset transactions settle almost immediately, requiring firms
to determine which controls must take place before settlement and which can
reasonably occur afterward.
She pointed to sanctions screening as
an obvious pre-settlement obligation, while highlighting the growing
sophistication of fraud typologies, including money mule activity, romance
scams, and so-called pig butchering schemes.
Fragmented regulation and
inconsistent implementation of travel rule requirements across jurisdictions
further complicate the challenge.
The head of digital asset financial
crimes risk management at a major North American bank argued that institutions
must also abandon the idea that digital assets represent a single, isolated
risk category.
"We need to rethink the way we
are scaling our risk to the products and services that we are offering,"
he said.
Rather than viewing digital assets as
one business line, firms must assess the specific products, services, and
customer use cases involved.
That becomes increasingly difficult
when transactions move continuously rather than through traditional end-of-day
batch processes, requiring investigations to be accelerated and supported by
blockchain analytics alongside conventional transaction monitoring.
The discussion repeatedly returned to
organizational design. According to the investment banking executive, digital
assets blur the traditional boundaries between sanctions, fraud, and AML
investigations.
Alerts increasingly contain elements
of each discipline, making separate investigative teams less effective.
"We have to reimagine how we
operate," she said, advocating a more integrated operating model in which
investigators possess broader financial crime expertise before specialist
support is introduced when required.
She also argued that blockchain
analytics should become a shared capability supporting multiple business
functions rather than remaining confined to financial crime teams alone.
At the same time, practitioners
cautioned against assuming that blockchain transparency automatically solves
every compliance challenge.
The banking executive noted that
institutions can now observe transaction histories much further across an
ecosystem than was previously possible, raising difficult questions about where
responsibility begins and ends.
