Why did crypto currencies soar when President Biden issued an executive order demanding a “whole-of-government” effort to regulate the crypto industry? Why indeed? It can be understood as a collective sigh of relief that the U.S. government has made clear that digital assets are part of its future roadmap. The order outlines recommendations for consumer protection and financial stability for cryptocurrencies in the U.S., as well as consideration for a U.S. central bank digital currency (CBDC). It directs a number of agencies to compile recommendations and reports on these various components.
The order balances encouragement for innovation with addressing financial stability, and mitigating the risks to consumers, investors, and business. It lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
The Path to Credibility: Regulatory Compliance & Oversight for Digital Assets
Today, approximately 40 million Americans, representing 16% of the adult population, have invested in, traded, or used cryptocurrency. The barrier to crypto becoming a more widely adopted currency hinges on broad acceptance. Currently, government-issued fiat is the default currency in the global economic system.
As more mainstream financial institutions participate in cryptocurrency, there is growing confidence that it can be a stable, acceptable form of global value exchange. With this order, and committing to establishing controls that balance innovation with risk, cryptocurrencies will have a degree of credibility that is sure to foster even faster adoption.
Many point to cryptocurrency being used in illicit financing activities such as money laundering, but there is growing recognition of its value as an alternative form of currency. As the White House develops a baseline of the dynamics for the space, that will lead to regulatory compliance and oversight, and will eventually bring greater stability.
Keeping Bad Actors Out Protects the Ecosystem
There is much misinformation about the nascent and blossoming cryptocurrency marketplace, and the way it’s used has changed drastically since its inception. As it continues to mature, we recognize that cryptocurrency is not the enemy. However, it has repeatedly been co-opted by bad actors which have created doubt about its legitimacy.
Leaders in this space don’t want bad actors in their ecosystem any more than those in the traditional banking system. They cannot afford the negative economic repercussions or the reputational risk, and as cryptocurrencies become more widely used and accepted, there is a natural trend to monitor activity. If a particular cryptocurrency is known for being popular with bad actors, that will naturally attract the government’s attention and likely deflect good customers. The new regulations will be an insurance policy for cryptocurrencies just as they are for banks.
Because the industry currently lacks regulatory oversight, cryptocurrency exchanges and wallets are currently experiencing rampant fraud. They rely heavily on ID document verification at account opening to verify identities and prevent fraud. These systems typically introduce high levels of friction for consumers during their account onboarding experience, and they have to undergo additional checks to actually trade or transact. In fact, it is not uncommon for a wallet or exchange to require several days between account deposit and transacting to ensure that the person is who they say they are and using their own account.
In the case that a bad actor uses a stolen bank account to make a deposit, the time lapse allows for the true owner of a bank account to potentially notice the fraudulent transaction and work with the bank to reverse the transaction. But there are faster, more efficient, and highly accurate ways for cryptocurrency companies to verify identities and grant ‘good’ customers immediate access so they can begin transacting, all the while also keeping bad actors out of the ecosystem.
As legislation and regulations around digital currency continue to evolve, it is vital that companies are ready to quickly adapt their strategies and technologies to ensure that customers are not restricted from gaining access to services.
How Cryptocurrency Platforms Can Prevent Fraud While Reducing Onboarding Friction
Using Socure, cryptocurrency platforms are driving user growth at scale by providing a frictionless customer onboarding experience, and doing it while reducing fraud risk. Socure captures up to 90% of fraud in the top 3% of riskiest users and reduces false positives by more than 13x compared to legacy solutions. Automatic, frictionless fraud checks at account opening, account update, and transaction allow more good customers to accelerate all their transaction capabilities, including time to funding, trading, and storing, thereby increasing customer lifetime value while preventing bad actors from entering the ecosystem.
To enhance the user experience, only those users that appear highly risky are escalated to an ID document verification check. Reducing reliance on ID document verification significantly decreases the need for manual reviews, which ensures more users complete the account opening process and begin transacting in real-time.
The best-in-class combination of Socure fraud scores both for third-party identity and synthetic identity fraud at account opening, coupled with our KYC/AML checks for additional account authorization enables cryptocurrency platforms to instantly onboard new customers and meet compliance requirements all with a single platform.
Socure’s KYC solution has the broadest data coverage available, enabling highly accurate assessment of thin-files, and younger demographics, in particular 18- to 25-year olds, ensuring more good customers are approved. Our end-to-end automated machine learning platform enables us to quickly update our models to meet evolving government requirements. The addition of Global Watchlist with Monitoring provides assurance users are permitted to transact on an ongoing basis.
Brigitte Engel is a Senior Director, Product Marketing at Socure responsible for emerging markets such as Buy Now, Pay Later, Cryptocurrency, and Online Gaming. Previously, Brigitte held marketing leadership roles with leading endpoint security companies, including Cylance and Guidance Software, and identity fraud vendor ID Analytics.
Socure is the leading platform for digital identity verification and trust.
Its predictive analytics platform applies artificial intelligence and machine learning technology with trusted online/offline data intelligence from email, phone address, IP, device, velocity, and the broader internet to verify identities in real time.
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