Are suspicious activity reporting requirements for cryptocurrency exchanges effective?

Daehan Kim, Mehmet Bilgin and Doojin Ryu ()
Additional contact information
Daehan Kim: Sungkyunkwan University
Doojin Ryu: Sungkyunkwan University

Financial Innovation, 2021, vol. 7, issue 1, 1-17

Abstract: Abstract This study analyzes the impact of a newly emerging type of anti-money laundering regulation that obligates cryptocurrency exchanges to report suspicious transactions to financial authorities. We build a theoretical model for the reporting decision structure of a private bank or cryptocurrency exchange and show that an inferior ability to detect money laundering (ML) increases the ratio of reported transactions to unreported transactions. If a representative money launderer makes an optimal portfolio choice, then this ratio increases further. Our findings suggest that cryptocurrency exchanges will exhibit more excessive reporting behavior under this regulation than private banks. We attribute this result to cryptocurrency exchanges’ inferior ML detection abilities and their proximity to the underground economy.

Keywords: Cryptocurrency; Cryptocurrency exchange; Financial regulation; Money laundering; Portfolio choice (search for similar items in EconPapers)
JEL-codes: E26 G11 K42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1186/s40854-021-00294-6 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fininn:v:7:y:2021:i:1:d:10.1186_s40854-021-00294-6

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-021-00294-6

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().