Surveillance: The Key to a Robust Digital Asset Ecosystem

The convergence of traditional finance (TradFi) and digital assets is reshaping the financial landscape, offering opportunities for innovation alongside complex challenges. As digital assets - from cryptocurrencies like Bitcoin to stablecoins and tokenised securities - gain mainstream traction, FIs and in particular banks hold a unique responsibility and opportunity to integrate these fast emerging, high-risk technologies while upholding trust, transparency, and regulatory compliance.

Standard Chartered is driving this convergence through the adoption of comprehensive financial crime frameworks, with next generation surveillance at their core. This is a practical approach balancing innovation with integrity, and building resilient, compliant frameworks in the developing ecosystem.

Bridging TradFi and Digital Assets financial crime: The 80/20 rule

Digital assets are transforming financial services, driving new capabilities and revenue models. Standard Chartered has embraced this shift early, through ventures such as Zodia Custody and Zodia Markets for institutional-grade custody and trading, and Libeara for tokenisation – also recently launching bank-operated digital asset custody and trading solutions. Integration amplifies existing financial crime risks like money laundering and sanctions evasion, while introducing incremental risks unique to digital assets – such as cross-chain transactions and decentralised finance (DeFi) vulnerabilities – necessitating advanced surveillance to mitigate risks and build trust in the digital asset ecosystem.

Digital asset compliance is 80% traditional finance, 20% digital asset nuance - and it’s that 20% that’s the difference between success or failure.

Sam Vicary
Head of Screening Product and Digital Asset Surveillance

As Sam Vicary notes, core practices – Know Your Customer (KYC), Customer Due Diligence (CDD), risk assessments, and governance – remain foundational, enabling banks with robust TradFi compliance to leverage existing strengths.

The 20%, the features of blockchain-based assets, includes pseudonymity, transparency, disintermediation, programmable finance, smart contracts, and 24/7 availability, which require tailored compliance approaches. Blockchain’s public ledger and advanced analytics enable FIs to address these risks, with only 0.14% of crypto activity linked to illicit activities in 2024. By partnering with blockchain analytics firms specialising in digital asset compliance, banks can harness these capabilities.

How banks can scale surveillance for digital assets

FIs have a pivotal role to play in fostering a secure and compliant digital assets ecosystem, and surveillance teams are emerging as key stakeholders and players acting as the frontline defence against financial crime. Multiple factors are critical to scaling a resilient surveillance programme for digital assets, including integrated coverage, advanced controls, on-chain analytics and specialised expertise.

1. Integrating comprehensive coverage across systems

Over the past year, Standard Chartered has adopted a measured approach to digital asset surveillance, beginning with Bitcoin and Ethereum and progressively expanding to stablecoins and MMF tokens, guided by a digital asset onboarding framework to assess risks comprehensively. By integrating digital asset and fiat surveillance systems, investigation teams gain a holistic view of client behaviour. For instance, wallet addresses are now screened in fiat transactions, such as Swift message fields, to identify links to on-chain activity, ensuring risks like illicit finance are detected across both worlds. By removing duplicate processes in fiat-crypto integration, STP rates have been improved, enhancing client experience and ensuring efficient, comprehensive risk coverage. This integrated approach offers a model for FIs to scale surveillance, balancing client experience with robust risk management across traditional and digital finance.

2. Strengthening controls and quality assurance

Standard Chartered’s surveillance teams have also introduced digital asset-specific Key Control Indicators (KCIs) to flag system weaknesses and operational anomalies early, driving continuous improvement. A dedicated Quality Assurance (QA) team rigorously reviews alerts on an ongoing basis, ensuring escalations are evidence-based and false positives are adequately justified. This paves the way for system optimisations and enhanced operational efficiency. Establishing clear KCIs and QA processes is a practical step for FIs to enhance surveillance accuracy, especially when scaling digital asset operations.

3. Leveraging on-chain analytics for compliance

Much of the 20% features of blockchain-based assets, such as transparency and disintermediation, are addressed through on-chain analytics, enabling the tracing of fund flows and patterns. For instance, Standard Chartered leverages blockchain analytics tools to tag wallet addresses linked to sanctions or fraud, placing tokens on hold if their origination is associated with illicit activity, regardless of the number of transaction hops. Continuous monitoring sets this approach apart by generating alerts for investigation if beneficiaries are later associated with illicit clusters, even years after the transaction. This capability is supported by the extensive amount of blockchain information available, and provides an advantage over fiat currency, where transaction tracing is limited by time and proximity constraints. Success hinges on deploying the advanced on-chain analytics tools, configuring them effectively, and equipping skilled, trained teams to maximise their impact. FIs can replicate this by partnering with blockchain analytics firms to integrate on-chain data into KYC and CDD processes, ensuring proactive, compliant surveillance of ultimate originators and beneficiaries.

Proactively monitoring digital asset movements with both pre-transaction and post-transaction controls enables early detection and comprehensive management of risk events, ensuring a safer and more secure environment in this dynamic and rapidly evolving space.

Cayden Chang
Product Owner, Digital Asset Surveillance

4. Building expertise and a learning culture

Effective surveillance hinges on skilled teams. Learning and development programmes provide comprehensive training on digital asset foundations, surveillance techniques, investigation methodologies, product capabilities, and hands-on analytics. Regular forums foster a learning culture, enabling surveillance teams to share insights and stay ahead of evolving threats. Standard Chartered also engages widely with industry peers, central banks, regulators, public and private partnerships, at the same time collaborating with compliance leaders from crypto-native firms for shared learnings. ForFIs , blending TradFi expertise with crypto-native knowledge through training, hiring blockchain specialists, and industry collaboration is critical to building resilient surveillance capabilities for digital asset operations.

5. Accelerating adoption to build risk muscle

Embracing digital assets requires foresight and openness to navigate an evolving landscape, but early adoption can build risk management capabilities that enable rapid adaptation. By proactively engaging with digital assets, FIs can develop a strong ‘risk muscle’, integrating surveillance frameworks that address financial crime and regulatory complexities from the outset. Standard Chartered’s early ventures in institutional-grade digital asset custody and trading solutions, demonstrate how bold innovation, paired with partnerships, accelerates learning, and the development of scalable compliance frameworks. This early-mover advantage has also strengthened client trust and positioned the bank to meet growing demand for digital asset services. FIs can emulate this by experimenting early, leveraging strategic partnerships, and investing in digital asset surveillance to build resilient frameworks as they innovate.

Looking ahead: A continuously evolving ecosystem

As digital assets transform financial services, the landscape evolves rapidly, driven by technological innovation, shifting regulatory frameworks, and increasing market adoption. As trusted custodians of reliability and security, banks are well-positioned to shape this future by leveraging existing compliance frameworks to address emerging challenges and opportunities. Key considerations – technological agility, regulatory alignment, and industry collaboration – will define the path forward for institutions striving to balance innovation with integrity.

The continued evolution of blockchain technologies, from layer-1 and layer-2 solutions to tokenised assets and stablecoins, will introduce new risks and vulnerabilities. Adaptive compliance frameworks that leverage blockchain’s transparency for pre-transaction monitoring can detect financial crime risks early. As regulations mature, FIs must align surveillance with global standards while navigating jurisdictional complexities to ensure full compliance.

Emerging technologies, such as AI and predictive analytics, will also transform surveillance by enabling proactive and real-time risk detection. For example, analysing wallet histories to track transaction hops instantly can streamline investigations, but requires reliable data environments to support ML.

Collaboration with industry participants and partnerships with blockchain analytics firms will drive standards for cross-border transparency, while establishment of global expertise hubs within FIs – to pool TradFi and crypto-native expertise – will help to address complex on-chain risks with agility.

In this dynamic ecosystem, those that adapt swiftly while upholding robust risk management will lead the way. By embracing technological advancements, aligning with global standards, and fostering collaboration, FIs can continue to shape a future where innovation and integrity coexist.

We are bridging traditional finance and digital assets by blending proven compliance practices with innovative expertise. Our surveillance teams are at the forefront, leveraging analytics and partnerships to mitigate risks and build trust in the ecosystem. FIs can embrace the journey by integrating robust surveillance across fiat and digital assets, empowering skilled teams, and collaborating with industry peers to shape a compliant and innovative future.

Caroline Ngigi
Global Head, Conduct, Financial Crime and Compliance Risk, Transaction Banking and Africa

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