What are the risks of using digital assets for payments and how can you mitigate them?

Today, I’m going to talk about the risks of using distributed ledger technology for payments, and how you can mitigate those risks.

So, let’s get into it. If you’re using DLT for payments, you’ll likely need a partner, which means: third party risk. As with other types of payments, it’s important to choose your partners carefully
But, what should you look for in a DLT payments partner? Firstly, the right regulatory licences in the markets where you want to use crypto. But regulators are tackling crypto at different times, different speeds and in different ways(it’s sometimes called the sunrise issue).

So where your partner is authorised is important. Opt for a business that’s authorised in a place known for strong regulatory oversight. If they’ve made the grade there, it’s likely they’ll have risk and compliance controls you can trust in.

So, what does that look like?

When it comes to preventing financial crime, the risks of using digital assets are similar to other types of payments.

That means your payment partner should apply similar controls, like:

• a detailed governance and oversight framework
• a risk-based approach
• enhanced due diligence on customers
• and of course regular, independent reviews to ensure their systems and controls are effective

But DLT also gives us new ways to tackle financial crime. Blockchains are more transparent, so they can actually be more effective in helping you detect financial crime risks.

You’ll want to make sure your provider is using blockchain analytics tools to screen payments and detect unusual behaviour. Some providers like BVNK also apply machine learning models for added protection

So, digital asset payments can be as safe or even more safe than traditional payments, if you work with the right partners and combine it with the right technology and risk management practices.