Melissa Strait, Chief Compliance Officer
At Coinbase, we think a little differently about compliance than most companies. In the coming months, we plan to give the public “under the hood” the programs and technologies we use to keep our customers safe and keep bad employees off our platforms. In addition, we will publish a series of research papers that explore some of the biggest challenges facing our compliance teams on a daily basis. The first looks at the misuse of crypto in financing global terrorist activities.
When it comes to innovation, consent often gets a bad rap. This tradition is not traditionally seen as driving product innovation – or revenue – and rarely works at the bleeding end of technology. In short, companies often see consent as a blocker and not an activator. This realization, combined with an aggressive regulatory and enforcement environment, creates environments where real innovation and transformation are difficult to drive. However, Coinbase is changing that.
Crypto is a highly regulated market. SEC, CFTC, Finsen, OFAC, different states and others each oversee different parts of that market. At Coinbase, we prioritize regulatory consent from the start of the company. We have always believed that in order to gain the legitimacy needed to adopt crypto mainstream, consent cannot be thought of later – it must be the way we operate. We strongly believe that in order for cryptocurrency to be widely accepted, we must have a constructive relationship with the regulators and agencies who are tasked with overseeing the crypto ecosystem. This trust begins with understanding the principles behind the core compliance standards and demonstrating the best class of effort to meet or even exceed those standards.
Coinbase’s dedication to compliance depends on the global financial ecosystem and the deep concern and concern for the health of those who participate in it. Our compliance program detects and prevents financial crime, monitors overall market health, and more. All of this is done for a single reason: to protect our customers.
So how different is consent in crypto compared to a traditional bank or other large financial institution? While crypto aims to create a completely new and open financial system, compliance with existing regulatory structures is not an option – it is a requirement. This means that Coinbase’s compliance team has the same responsibilities as the world’s largest financial institution when it comes to customer verification, enforcing anti-money laundering policies, and maintaining internal control. In fact, many of our programs are deployed by the same global retail banks that you probably use on a daily basis.
The nature of cryptocurrency still creates a variety of unique challenges and more importantly opportunities. For example, the transparent and unchanging nature of blockchain transactions makes it much easier and faster for skilled investigators to track illegal transactions wherever they are. This is in stark contrast to the conventional financial system where illegal funds can be difficult to find because of offshore bank accounts or through complex corporate structures that limit transparency and visibility.
Blockchain technology, which supports crypto, has the promise of creating countless solutions in financial compliance. Part of Crypto’s commitment is to bring financial access to underbanks. It is a demographic that lacks access to basic financial services, such as bank accounts, cable transfers and basic consumer financing options such as mortgages or small businesses. One driver of this problem is the lack of credible identity documents in certain areas that we accept in the case of others. Blockchain technology solves this problem by creating and maintaining unique digital identities that can meet third-party identity verification requirements. But the widespread acceptance of this model is unfortunately still a long way off. Existing regulatory structures will probably make it difficult for most organizations to adopt such a model, and regulators may be skeptical of systems where organizations do not check or collect their customers independently and do not show the visibility of their customer identification information. Making this process global and not limited to any one country leads to a complex web of international rules and regulations, which further complicates the innovation effort.
So with all of this in mind, Coinbase is in an incredible position: we’ve been able to reconsider consent from the ground up, creating systems and processes that not only meet consent requirements for the regions we operate in, but also build a foundation for next-generation consent. Which takes advantage of all the features of the blockchain. Over time, it is our hope that the systems and processes we are developing will drive a compliance revolution.
For now, however, at Coinbase, we are focusing our resources on two main areas: 1) working with our product, engineering and data science team to create sophisticated solutions to financial crime risk and 2) developing intelligence only in money laundering, terrorist financing, and Prohibitions can be collected from blockchain around current issues that we can publicly share to provide others in the crypto space, regulators and law enforcement agencies.
It is important to ignore this kind of innovation in compliance, which increases the availability, accessibility and equity of financial services. We believe that we can prove that new compliance technologies can both protect the financial ecosystem from bad actors and initiate new innovations at an important angle in the industry. It’s time to dump her and move on.
How Coinbase is building consent The driver of the innovation was originally published in the medium on the Coinbase blog, where people continue the conversation by highlighting and responding to the story.