The issue of compliance and proper AML practices within the crypto markets has been a concern for regulators and FinTech stakeholders in this field as well. Coinbase crypto exchange is the latest to patent a technology that can single out ‘bad’ accounts within its ecosystem. The self-learning tech advancement could improve how exchanges are regulated if implemented by Coinbase in the near future.
Coinbase had earlier on filed for this patent with the United States Patent and Trademark office, its approval was consequently published on November 19th. The infrastructure design of the compliance product is based on allocating scores that automatically phase out non-compliant accounts. Basically, a number of underlying factors are considered within the scorecard; verification history, location, account balance and user age to mention a few.
In addition, the automated enforcer also performs checks on the due diligence intensity carried out on different accounts within Coinbase. This involves looking at past compliance records to arrive at the decision of an account’s KYC/AML status. Those that meet the scorecard minimum pass the compliance enforcer while ‘bad’ accounts whose transactions are over $2,000 are referred to the regulator.
The automated system is designed in a way that investigators within its ecosystem are able to evade the compliance enforcer. Furthermore, it is equipped to regularly update its efficiency based on the data gathered from accounts; the system can also tell the difference when a training set is being carried out.
So far, Coinbase is yet to make it public whether they will implement the newly acquired patent. However, this would be in the best interest of both crypto exchanges like Coinbase and regulatory authorities who monitor FinTech advancements.