Why Virtual Currency Companies Need to Rethink Compliance Skip to content

Why Virtual Currency Companies Need to Rethink Compliance

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As leading crypto exchanges and wallets adapt to evolving regulation, they’re setting a new standard for all financial services institutions.

How regulation is driving innovation

Efforts to regulate the cryptocurrency industry are gathering momentum, driven by the collapse of high-profile exchanges, longstanding concerns about financial crime, and the deepening link between crypto and traditional finance.

This is creating a major compliance challenge, as exchanges and wallets must comply with a complex patchwork of regulations and sanctions or risk substantial fines.

Virtual currency exchange Bittrex was fined $29 million for multiple sanction violations.

In response, the industry’s leading companies are using technological innovation to set new internal standards for geolocation security, blazing a trail for others to follow.

Following ambitious new US sanctions, the volume of illicit crypto transactions rose to $20.1 billion in 2022.

Navigating a fragmented regulatory landscape

For a virtual currency company operating in multiple jurisdictions, worldwide – each with its own emergent regulations – maintaining compliance is tough. For example, there’s a highly diverse approach to cryptocurrency across Asia, ranging from an outright ban in China to Singapore’s more lenient, tech business-friendly regulations.

In only three years, the number of countries to:

  • implicitly or explicitly ban crypto doubled

  • apply Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT) and/or tax laws to crypto tripled

Even within a single country, the regulations can be confusingly complex. This is especially true in the United States, where multiple bodies (at federal and state level) control different aspects of a virtual currency company’s business. The most important bodies include:

  • The Financial Crimes Enforcement Network (FinCEN)
  • The Office of Foreign Assets Control (OFAC)
  • The U.S. Securities and Exchange Commission (SEC)
  • The U.S. Commodity Futures Trading Commission (CFTC)

The key to compliance? Accurate geolocation.

When you operate in such a fragmented regulatory landscape, compliance starts with knowing exactly where your users are, so you know which jurisdiction’s laws apply.

“Virtual currency exchanges operating worldwide should understand both who – and where – their customers are. OFAC will continue to hold accountable firms…whose failure to implement appropriate controls leads to sanctions violations.”

-Andrea Gacki, Director, OFAC

The financial services industry as a whole still relies heavily on IP addresses for geolocation. But they’re too imprecise, and much too easy to manipulate to be effective for verifying crypto customers.

Bad actors can choose from an arsenal of cheap, readily available tools – including virtual private networks (VPNs), proxies, and other anonymizers – to mask their true location.

The scale of IP address manipulation

Over six months, GeoComply detected 15 million attempted transactions with IP addresses supposedly located in the United States, but in reality, located elsewhere – including sanctioned jurisdictions such as Iran and Cuba.

This adds another layer of anonymity for bad actors to hide behind, creating significant risk for virtual currency companies and their partners – and raising regulatory red flags.

The right geolocation technology, at the right time

Next-generation security uses device-based geolocation from multiple sources – such as GPS and Wi-Fi triangulation – to verify up yo as close as 5 meters of a user’s true location.

This method is already proven in the highly regulated U.S. iGaming and sports betting industry, where strict, state-specific requirements depend on identifying customer locations with pinpoint accuracy.

Pioneering the future of geolocation security

Verifying a user’s location is just the start. Certain leading crypto companies are also combining device-based geolocation with IP address analysis and geofencing tools to: 

  • Block users in high-risk or sanctioned jurisdictions
  • Spot VPN use and other regulatory red flags
  • Strengthen KYC verification
  • Defend your platform and brand against fraud and organized crime
  • Attract and protect banking and payments partners

And in doing so, they’re setting a new standard for compliance.

Turning compliance from a checklist to a core value 

The pioneers of next-generation geolocation security are demonstrating how to adapt to an extremely challenging regulatory landscape.

They’re also showing regulators, partners, and potential investors that they see compliance as much more than just a checklist – committing to making the internet a safe and secure place to do business.

Ready to dive deeper?

Check out our white paper: “The 5 Geolocation Capabilities Crypto Businesses Need to Solve Compliance”
Download Now
Crypto Fever White Paper Cover

About GeoComply

GeoComply helps provide fraud prevention and cybersecurity solutions that detect location fraud and help verify a user’s true digital identity. Trusted by leading brands and regulators for the past 10 years, the company’s geolocation solutions are installed on over 400 million devices and analyze over a billion transactions every month.

Our award-winning products are based on the technologies developed for the highly regulated and complex US online gaming and sports betting market. Beyond iGaming, GeoComply provides geolocation fraud detection solutions for streaming video broadcasters and the online banking, payments and cryptocurrency industries, building an impressive list of customers, including Akamai, Amazon Prime Video, BBC, BetMGM, DraftKings, and FanDuel.

For more information, visit our website or contact: solutions@geocomply.com
© 2023 GeoComply Solutions Inc.  GEOCOMPLY and the GeoComply logo are trademarks of GeoComply Solutions Inc. Other names or logos mentioned herein may be the trademarks of GeoComply or their respective owners. The absence of the symbols ™️ and ® in proximity to each trademark, or at all, herein is not a disclaimer of ownership of the related trademark.  All rights reserved.

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