Regulators round the globe are increasingly taking an active interest in cyrptocurrencies and virtual assets. Their potential to be used by organised crime and terrorist organisations is attracting particular scrutiny: some commentators now argue that authorities need to develop means to associate cryptocurrency wallets with criminal activities and require exchanges to block the owners from exchanging those funds for cash.

But could the technology at the heart of cryptocurrencies, blockchain, be the building block of a new breed of anti money laundering solution?

The global anti-money laundering task force has said it is closer to establishing a worldwide set of standards to apply to virtual currencies.

In October (at its plenary), the Financial Action Task Force (FATF) will discuss which of its existing standards need to be updated to address virtual assets, since its current recommendations do not acknowledge them.  It then proposes to revise the methodology it uses to assess how countries implement these standards and when this revised assessment methodology will take effect.

The President of the FATF, Marshall Billingslea, said that the adoption of anti-money laundering standards and regimes pertaining to virtual currencies is “very much a patchwork quilt or spotty process,” which is “creating significant vulnerabilities for both national and international financial systems”. However, he also said that digital assets present a “great opportunity” and that as blockchain technology is still evolving “you can’t tilt too far in one direction or another” in terms of regulation.

In the meantime, companies like Reuters are exploring blockchain based KYC (know your client) solutions that could deliver a large part of the functionality required to address the new standards (https://blogs.thomsonreuters.com/financial-risk/regulation-risk-and-compliance/kyc-using-blockchain-answer-banks/ ).  Blockchain technology offers a number of features which could be particularly advantageous in the context of a utility KYC/AML platform: the immutability of records; enhanced privacy; a shared ledger (which should improve participants' access to accurate information); and greater transparency.

However, for a solution to be successful issues around infrastructure access and governance, security, adoption, verification and pooling of data sources, among other things, will need to be addressed.