Know your transaction
KYTAlso called crypto transaction monitoring, blockchain transaction screening
Know your transaction is the practice of assessing the risk of each individual transaction, not only the customer behind it. The term is used most in crypto, where firms screen wallet addresses and trace funds on the blockchain before and after a transfer. It extends know your customer checks to the money itself.
How it works
When a customer sends or receives a crypto transfer, a KYT tool checks the counterparty address against known risk sources: sanctioned wallets, darknet markets, mixers, scams and hacked funds. Blockchain analytics then trace where the funds came from and where they go next, often several hops back. The transfer gets a risk score, and high scores are held for review before funds are released or credited.
KYT sits alongside the travel rule, which requires sender and recipient details to travel with a transfer between providers. Firms check that this information is present and matches, and treat missing or inconsistent data as a risk factor. Alerts that cannot be cleared go to the money laundering reporting officer, who decides whether to file a suspicious activity report.
The rules
Require virtual asset service providers to monitor transactions and to obtain, hold and pass on originator and beneficiary information with virtual asset transfers.
Virtual asset service providers, through national lawRequires cryptoasset businesses to collect, verify and share originator and beneficiary information with cryptoasset transfers, and to act when that information is missing.
UK cryptoasset exchange providers and custodian wallet providersExtends the travel rule to crypto-asset transfers with no minimum amount, and requires checks on transfers above EUR 1,000 to or from self-hosted wallets.
Crypto-asset service providers, banks and payment service providersRequires sender and recipient information to pass with transmittals of $3,000 or more; FinCEN's 2019 guidance confirmed it covers convertible virtual currency.
Banks and money transmitters, including virtual currency businessesCommon questions
Is KYT the same as transaction monitoring?
KYT is a form of transaction monitoring. The term is mostly used for crypto, where each transfer can be screened against blockchain data in real time. Traditional transaction monitoring looks for unusual patterns across a customer's account activity over time.
Why does KYT matter in crypto?
Crypto transfers move between pseudonymous addresses in minutes and cannot be reversed. Screening each transfer against known risky addresses lets a firm stop exposure to sanctioned wallets, hacks or scams before funds are credited or sent.
Does KYT replace KYC?
No. KYC establishes who the customer is and how risky they are. KYT assesses each transaction they make. Firms need both, and KYT results feed back into the customer's risk rating.
