Elliptic, a startup that monitors the bitcoin network for suspicious patterns, has introduced anti-money-laundering data into its service through a partnership with LexisNexis Risk Solutions.
The combined offering is being pitched as a way for banks to comfortably do business with bitcoin exchanges and other companies that deal in the digital currency. Such firms have struggled to get or keep bank accounts in recent years as financial institutions shun various industries and regions perceived as high risks for money laundering — a
The vendors' partnership was announced Wednesday amid one of the bitcoin ecosystem's periodic crises — in this case, the
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The situation turns on whether the CFTC inadvertently pushed Bitfinex to adopt a weaker security system than it had been using. However, the way the bitcoin exchange used the new system was significantly flawed, security experts said.
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The pressure on banks to become less risky backfires when they respond by curtailing services that are vital in a functioning financial system.
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The Bank of England is among the central banks exploring possible uses of blockchain technology. In a recent speech, a BOE official noted how it would open access to central banks beyond commercial banks. "Everyone including individuals would be able to hold such balances," he said.
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Elliptic provides data and analytics services to financial institutions and law enforcement agencies. It was a winner of the Swift Innotribe Start-up Challenge in 2015. LexisNexis Risk Solutions, a unit of Relx Group (formerly known as Reed Elsevier), services 100 of the top U.S. banks, it says, as well as 80% of U.S. federal agencies.
The alliance allows Elliptic to apply bank-grade risk management practices by identifying registered users of bitcoin businesses that match individuals on money laundering, terrorism and drug dealing lists, among other links to risky behavior that brought the digital currency to notoriety, said Thomas C. Brown, senior vice president of U.S. commercial markets and global market development at LexisNexis Risk Solutions. Elliptic clients can screen bitcoin entities for links to sanctions, enforcements, politically exposed persons, adverse media and state-owned companies.
"We've yet to see the mainstreaming of bitcoin by financial institutions, despite the clear benefits that blockchain technology brings," Brown said. "Banks are highly regulated, so one factor that might be making banks hold back is the lack of transparency into the individuals behind those bitcoin transactions, even though [the] distributed ledger is supposed to make everything about a transaction known to all."
The blockchain, the technology underpinning bitcoin, has drawn interest from banks for its potential to improve speed, efficiency and record-keeping capabilities for financial transactions, but the industry is still cautious in its approach to the digital currency.
"Reasons for de-risking extend beyond money laundering and terrorist financing, to a broader range of factors that might be a threat to the financial institution," Brown said, but regarding know-your-customer and laundering risk, "this offering, which expands the risk information ecosystem, provides a way for banks to monitor the risk rather than de facto de-risk."
