The New York State Department of Financial Services (NYDFS) told banks on Wednesday to start using blockchain analytics to stop illegal money activity. According to the regulators, interest in digital assets is growing rapidly, and banks must be ready to deal with new risks that come with them.
“As traditional banking institutions expand into virtual currency activities, their compliance functions must adapt, onboarding new tools and technologies to mitigate new and different risks,” NYDFS Superintendent Adrienne Harris explained in a statement on why banks need to act.
The regulator said banks should not wait until problems appear. Instead, they should use this system in daily checks. For instance, in screening customer wallets, and checking the source of funds. It also advised banks to study customer behavior and compare expected activity with actual transactions to spot unusual moves.
“Emerging technologies introduce new and evolving threats that require new tools, such as blockchain analytics, with enhanced capabilities to aid risk identification and mitigation.” the department said. It also reminded banks that they play a “critical role in safeguarding the integrity of the financial ecosystem to prevent illicit activities like money laundering, terrorist financing, and sanctions evasion.”
Meanwhile, this is not the first time banks would be encouraged to adopt blockchain in their system. Back in April 2022, the department released its Guidance, which told licensed virtual currency businesses to rely on blockchain technology for risk checks.
Later the same year, the department issued more instructions under the Virtual Currency-Related Activity Guidance, saying banks and foreign branches needed approval before starting new crypto projects.Since then, the regulator has seen more banks showing interest in virtual currencies, either through their own projects or customer demand.
Moreover, Officials believe blockchain analytics can give banks better intelligence to handle these risks. Banks were also told to adjust tools to match their business models and to update their risk frameworks regularly as markets and customer types change.
