As cryptocurrencies continue to flow into the financial mainstream for use in commerce and investment, they are also growing as tools that facilitate crime. Chainalysis, a blockchain research firm, reported a 79% increase in the value of criminal activity linked to cryptocurrencies last year, to a record US $14bn. This fact is making them objects of regulatory scrutiny.
Countries around the world have made, or are considering, regulations that require banks and other organisations that handle cryptocurrency transfers to update their know-your-customer (KYC) and know-your-transaction (KYT) compliance and reporting procedures.
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By GlobalDataGlobalData research reveals that security revenues are headed for strong growth in the first half of the 2020s, reaching $198.0bn by 2025. The strongest growth will be in software, which will record a CAGR of 13% between 2020 and 2025, rising from $52.1bn in 2020 to $96.5bn in 2025. Over the same period, hardware revenues will increase from $26.5bn to $40.7bn, a CAGR of 10%. Services will rise by a CAGR of 5%, from $47.9bn in 2020 to $60.7bn in 2025.
Financial services sector: exponential rise in cyberattacks
The global financial sector has experienced an exponential rise in cyberattacks. There have been cyberattacks on financial organisations at a global level, with outages in New Zealand, for Australia & New Zealand Banking Group; attacks on Liquid, a Japanese cryptocurrency exchange; on Fiducia & GAD, a German technology operator serving the nation’s cooperative banks that was hit by a DDoS attack; and on SWIFT, the global financial electronic payment messaging system, from which hackers attempted to steal more than $1bn. The reasons the sector is prone to growing cyberattacks include the uptake of modern technology and digital transformation.
That includes increasing the use of digital channels to compete with fintech companies as well as the growth in digital currencies and the rise of crypto. The other driver is regulatory. Financial institutions have gone through a wave of regulatory changes, particularly around privacy/data and consumer rights. Another motivation behind attacks is that cyber criminals are becoming more knowledgeable of the mechanics with which the financial sector operates and are utilising specialist tools and services to conduct their crimes.
The former Head of Payments for Investec Bank, Joe Higginson, joined Identitii as Chief Commercial Officer last May.
As Head of Payments at Investec, Higginson was responsible for designing, building, and implementing a next generation payments infrastructure for the bank, reporting directly to the Chief Operating Officer. The new platform sits at the heart of the bank’s technology architecture, enabling it to scale quickly to meet increasing customer demand for faster payments and more streamlined products.
Prior to Investec Bank, Joe was Global Head of Payments for Travelex, where he was responsible for innovating across Travelex’s suite of products to help increase revenue and grow the bank’s payments business. He also held roles with Western Union Business Solutions, where he established and ran the company’s financial institution division, responsible for product development and sales to financial institution clients.
At Identitii, Joe uses this industry experience and significant payments expertise to drive Identitii’s commercial strategy and go to market activities.
Says Higginson: “The global payments landscape is changing rapidly, as financial institutions accelerate their move to digital to better leverage Open Banking and meet changing customer and regulatory demands. It’s easy to underestimate how hard it is for banks to make these changes, but the reality is that they are operating tens or hundreds of different interconnected systems that are decades old and so complex it’s impossible to simply turn one off so you can connect a new one.”
Noting the rise in cyber crime linked to crypto, Higginson discusses the challenges faced by the banking sector.
RBI: Research suggests that criminal activity linked to crypto is not only on the rise but is hitting record levels….do you agree that regulatory action is not only appropriate but overdue?
Joe Higginson, CCO, Identitii
Yes, I do. If a company wants to set up the ability for people to hold, store, or purchase cryptocurrency, then it should be regulated. Not only does regulation provide protections for consumers and companies, it also increases the legitimacy of the digital currency, and, therefore, appetite for its use.
RBI: In what areas are the regulators likely to focus attention e.g KYC, KYT, and reporting procedures?
Joe Higginson, CCO, Identitii:
The first natural step is to set up a framework with a robust KYC procedure. This ensures every customer or potential customer is thoroughly vetted through a rigorous process.
This anchors the knowledge of who services are being provided to and creates a very tidy mechanism to protect people, enable safer (or more observable) transactions, and satisfy the regulatory requirements.
RBI: What are the implications for banks?
Joe Higginson, CCO, Identitii:
There are two primary implications that stand out.
The first for banks is understanding how to activate relevant cryptocurrency services to consumers that maximise revenue opportunities. There is a growing need and pressure for banks to participate in the changing world of how people move money and purchase goods or services.
The second implication is meeting the expectations placed upon banks to uphold a strong duty of care while adequately serving customers. As the market for crypto products and services grows, banks will be pressured to meet the demands of customers and stakeholders with relevant offers. At the same time, these institutions will have to adhere to increasingly strict regulation. It is a complicated balancing act.
RBI: How do you assess the banks’ willingness to ramp up their defences? Based on your extensive and senior-level experience at Investec, do banks get it?
Joe Higginson, CCO, Identitii:
Overall, banks are doing a good job of participating actively in improving the regulatory process.
Firstly, banks have to defend their customers. They have a duty of care to protect their money from fraud or scams. Banks must also protect themselves from financial crime, reputational damage, and non-compliance.
A defence rigorous enough to meet the needs of the consumers and the bank demands thorough vetting processes, rigid compliance, and regulatory practices.
We have already seen a significant shift to adopting newly released technology offerings globally, and healthy collaboration between incumbents and emerging companies. Major benefits will be reaped when businesses learn from each other and harness the power of networked ideas, rather than customising new platforms to conform to legacy workflows.
RBI: Are there any significant regional variations here-eg are banks in N America or Europe or Asia leading the way in making the right investments and prioritising their defences?
Joe Higginson, CCO, Identitii:
In general, there is a concerted effort between countries to collaborate. The UK is at the forefront of many of the current evolutions happening in payments, with open banking, mooted use of CBDCs, and the recently announced crypto legislation planned for introduction this year. The US has also started acknowledging the need to legislate emerging digital currencies with the executive order Joe Biden announced.
While many countries have chosen to ban or severely restrict the use of crypto, others permit the use and trade of digital currency. In the latter case, it is in the best interest of jurisdictions to work collaboratively in order to improve regulation, transparency, cost, and user experience.
RBI: In what way is your firm helping to optimise bank defences?
Joe Higginson, CCO, Identitii:
Trust is the currency that powers today’s modern financial system. People want confidence that their money will be safe, and that payments will end up in the right place at the right time, without the interference of criminals or scammers.
Through verified payment data and quality compliance reporting, Identitii’s platform helps banks, crypto exchanges, and other regulated entities to build trust and confidence with consumers and regulators.
Joe Higginson, CCO, Identitii
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Top trends impacting cybersecurity in 2022
Why does cybersecurity matter for businesses?
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