With crypto scams hitting $9.9 billion in 2024 and 90% of UK crypto apps failing AML checks, the industry needs data sharing to combat fraud.
With crypto scams hitting $9.9 billion in 2024 and 90% of UK crypto apps failing AML checks, the industry needs data sharing to combat fraud.While the crypto industry is revolutionizing the world of finance, there’s an underlying reality bubbling beneath the surface.
Hitting record levels, cryptocurrency scams reportedly accounted forWhether in the form of “old wine in new bottles” frauds — such as Ponzi and pump-and-dump schemes or new crypto-specific fraud typologies like address poisoning — the global fraud epidemic is hitting the industry hard and undermining consumer confidence. Criminals are increasingly abusing the sector to launder the fraud proceeds generated in the traditional finance sector. This creates compliance challenges for firms keeping pace with evolving Anti-Money Laundering rules. After all, nearly 90% of crypto registration applications in the UKThis abuse of the crypto sector is not going unnoticed by an industry working hard to clean up its image in the eyes of global regulators, many of whom are starting to look to regulate the sector beyond the AML perimeter. Efforts by individual firms — like industry scam flagging tools and disruption operations — laudable though they may be, will have limited effect in isolation.Cross-sector public-private data sharing to tackle fraud is fast becoming the norm in the TradFi sector. Whether via mandatory anti-scam data sharing between financial services and telcos in Singapore or industry-led voluntary schemes in Australia and the UK, data sharing is accepted globally as one of the key defenses against global fraud.We can only put a dent in this global crime wave by joining the dots along the fraud value chain. As fraud adapts to the new financial landscape internationally, what is missing in this chain is the digital assets community. Bringing the community into existing data-sharing efforts will not only help to build a strong ecosystem but will also benefit the industry itself.First, the current limited use of crypto as a mainstream payment medium means even the most committed crypto criminal cannot exist in isolation. The on-ramping and off-ramping between crypto and fiat currencies are key intervention points in the fight against crypto-linked fraud. With neither side seeing the whole picture, failing to share data impedes efforts. Second, using crypto in the fraud laundering chain creates an AML challenge. With regulators cracking down on exchanges and new rules starting to bite, the industry needs to build defenses against fraud proceeds laundering. It cannot do this without the essential data flows needed to spot and block individuals from entering their ecosystem, data which it must source from further up the value chain. Third, while the will to tackle fraud within the digital assets community is growing, compliance as a profession within the sector is a nascent discipline. The industry would benefit from hard data and the experience of established fraud prevention specialists across other sectors, for whom the types of emerging frauds are “business as usual.” While the arguments in favor of cross-industry data sharing to prevent crypto-linked fraud are clear, what needs to happen to implement the theory?The UK offers a potentially hospitable policy environment for the industry’s first forays into cross-sector data sharing.unequivocally that “data protection is not an excuse when tackling fraud and scams.” This is particularly relevant to recent crimes, one of which saw scammersNext, the regulatory horizon for digital asset regulation in the UK provides carrots and sticks for fraud prevention and data sharing. The UK Chancellor’s announcement on future regulation strongly suggests the digital assets industry will be bound by the same consumer protection rules as the TradFi sector. It is difficult to imagine UK consumer protection against fraud without a cross-industry data-sharing element. The carrot is also there with the Financial Conduct Authority — and the stated future digital asset regulator — stating data sharing is a key tool in the fight against fraud proceeds laundering. Finally, the UK has a rich and established financial crime data-sharing ecosystem, with robust public-private, intra-industry and cross-sector collaboration, including through the Joint Money Laundering Intelligence Taskforce. Opening these initiatives to the digital assets industry has already started, and with some government and regulatory backing, it could be accelerated. The crypto and digital asset community knows only too well the reputational and regulatory risks posed by the fraud emergency. But recognition alone is not enough, and efforts must not remain siloed. Cross-industry data sharing is a key enabler of effective fraud prevention worldwide. Given the UK’s conducive environment, it is uniquely placed to lead by example.This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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