Horizon KYC/AML Blockchain Solutions in Line with SEC, CFTC & FinCEN Joint Statement on Digital Assets

Horizon’s summary of the joint statement and solutions for entities to comply with the BSA

On Friday, October 11th, the leaders of the US Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the U.S. Securities and Exchange Commission (SEC) issued a joint statement reminding businesses and persons involved with digital assets of their anti-money laundering (AML) and Financing of Terrorism (CFT) obligations under the Bank Secrecy Act. Horizon offers financial institutions its integrated KYC/AML solutions, KYCware and AMLCop, to both support and maintain these increasing compliance demands without sacrificing user experience.

The Bank Secrecy Act is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering and the regulators work to provide clarity on what constitutes as a ‘financial institution.’

As the joint statement outlines:

“Certain BSA obligations that apply to a broker-dealer in securities, mutual fund, futures commission merchant, or introducing broker, such as developing an AML Program or reporting suspicious activity, apply very broadly and without regard to whether the particular transaction at issue involves a “security” or a “commodity” as those terms are defined under the federal securities laws or the CEA.”

“Broker-dealers and mutual funds are required to implement reasonably-designed AML Programs and report suspicious activity. These rules are not limited in their application to activities involving digital assets that are ‘securities’ under the federal securities laws.”

The regulators stated that regardless of terminology, businesses and people involved with digital assets or digital securities could be expected to follow various banking and financial laws to establish and operate effective AML programs, record-keeping and reporting requirements, and suspicious activity reporting (SAR) requirements.

Horizon’s methodology has always worked to keep in step with today’s regulatory landscape and make educated guesses as to where it is headed, which we’ve had success in thus far. This is evident in our first-mover integration of transfer agents, building our CustodyWare solution to enable registered transfer agents to custody and manage digital securities. We announced leading transfer agent and registrar firm Vstock Transfer is licensing this solution back in January, and since then other industry participants have taken steps to integrate transfer agents into their applications. Horizon’s forward-thinking software is also evident now as our KYC/AML solutions already work to keep regulated entities in line with the regulator’s most recent join statement. Here’s how:

KYCware is an advanced Know Your Customer “KYC” software solution supplying financial institutions with a white-label app for onboarding & verifying users, AML screening, & enhanced regulatory compliance. Users download the high-tech, high-touch app and go through advanced ID, document, and identity verification technology including anti-gaming features, a Machine Readable Zone ‘MRZ’ scanner and liveness detection. The forms auto-adjust depending on an investor’s jurisdiction and regulatory requirements.

Once submitted, AMLCop automatically screens investor details against a proprietary database of global sanctions, Politically Exposed Persons (PEPs), watchlists, and known fraudulent Ethereum wallets. In line with data storage protection regulations, data is stored in memory and never distributed to third-parties. Instead, company representatives securely download and review the streamlined submissions through the hosted web portal. Notably, AMLCop scans wallets during the onboarding process and throughout the entire lifecycle of the digital securities.

All of Horizon’s solutions are integrated with the Ethereum public blockchain. This means that records of all KYC/AML transactions are clearly stored and tamper-proof on the blockchain. This allows for detailed and accountable reporting which is always available for internal checks or any regulatory oversight that may happen.

In conclusion, if you’re a person or entity that falls under the definition of a “financial institution,” your AML/CFT activities will be overseen for BSA purposes by one or more of the overseeing agencies. This doesn’t have to be a painful transition for you or your users. Please reach us at horizon@horizon-globex.com to schedule a demo and start building or enhancing your AML Program.