Treasury Seeking Comments on How Banks Mitigate Digital Asset Risks
The Treasury Department is seeking public comments to help it identify “innovative or novel” methods that banks and other financial institutions are using to detect illegal financial activity involving digital assets. The comment notice is required by the Genius Act, which became law in July and is partly meant to prevent criminals, terror groups and others from using stablecoins to launder money, evade sanctions or finance terrorism. Comments are due Oct. 17.
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The Genius Act requires Treasury to seek public comments on specific technologies that banks are using to detect illegal activity, including AI. Treasury said AI is “playing an increasing role in [anti-money laundering, countering the financing of terrorism] and sanctions compliance, offering innovative solutions to help financial institutions analyze significant amounts of data and more effectively identify illicit finance patterns, risks, trends, and typologies.”
The agency also is seeking comment on banks’ use of “digital identity verification,” blockchain technology and monitoring, and “application program interfaces,” which it said are systems that allow “different software applications to communicate and interact with each other, including internal and external applications.” That includes “various applications used by a financial institution for AML/CFT and sanctions compliance,” Treasury said.
Financial institutions can use these tools to protect digital assets from “misuse” by “drug traffickers, fraudsters, ransomware attackers, terrorist financiers, Iranian regime-linked sanctions evaders,” cybercriminals from North Korea and others, Treasury said. But the agency also said it’s aware that these new tools “may present new resource burdens” because of their high costs and the expertise they require.
“Financial institutions may also face difficulties using these tools effectively, especially at early stages of use, due to their novel nature,” Treasury said. “As such, it will be critical for financial institutions to evaluate these tools and implement them as part of a comprehensive AML/CFT and sanctions compliance program.”
Treasury said it’s accepting feedback “on any matter” relating to how banks are using these new methods to mitigate risks tied to digital assets, including how much they cost, the amount and sensitivity of information that banks are collecting, “operational challenges and efficiency considerations,” how effective they are at mitigating illegal finance and complying with sanctions, and more.