Blog Post: Is KYC and AML Compliance a Smart Move for Cryptocurrency?
When it comes to KYC and AML compliance in the crypto world, there’s a lot of debate. On one hand, some investors feel these regulations capture too much personal information and undercut the anonymity principles of crypto. On the other side, the case is strong that these security protocols will work to thwart criminals using crypto for their fraudulent and other illegal activities.
Let’s take a look in this blog post at what KYC and AML mean. Then we’ll discuss why crypto exchanges benefit from implementing a KYC procedure and an AML compliance program.
Know Your Customer (KYC) in Crypto
KYC is an acronym meaning “Know Your Customer” or “Know Your Client.” In the wider financial sector, governments and regulatory bodies require institutions offering financial services to the public like banks, stockbrokers, and, more recently, crypto exchanges to collect data on their customers to verify their identity.
Although it’s required by law, the details of the process vary depending on the company itself and the countries they operate in. As such, they can ask for any of the following information (less or more) before allowing you to open an account or use their services:
- Your Full Name
- Passport/Driver’s License/Other Government-Issued Photo ID
- Proof of Residency
- Phone Number
- Social Security Number
- Email Address
- Home Address
- Bank Statements
- Energy/Gas/Water Bill
And that’s not all. Exchanges may also run deeper background checks under their responsibility of Customer Due Diligence (DD). All of this ensures the company knows exactly who they’re doing business with and if they’re related to any suspicious or illegal activity.
What is Anti-Money Laundering (AML) in Crypto?
Money laundering is the act of making illegal funds look like legal funds. AML (or Anti-Money Laundering) protocols are a safeguard to help prevent companies from being used in laundering schemes. It’s a catch-all term that refers to the rules and procedures all financial institutions must adhere to– KYC being one of the most important parts of it all.
How Does KYC and AML Compliance Benefit Crypto Exchanges?
So, is KYC and AML compliance a smart move for cryptocurrency? Yes, and it’s hard to say otherwise. Here are the key benefits an exchange sees when they implement robust KYC and AML protocols:
- It helps them satisfy regulatory requirements
- It builds trust between the exchange and the customer
- It protects them from fraud and other illegal by verifying identities
- It tracks transactions to reduce instances of tax evasion and fraud
- It helps get certifications from regulatory entities
Although it goes against bitcoin’s founder, Satoshi Nakamoto’s, idea of anonymity and decentralization, it’s too attractive of an opportunity for criminals to resist. So it’s important for us to fight against these illegal activities in any way we can.
Cryptocurrency exchanges may not realize the tools and processes needed around KYC and AML compliance, but need to educate themselves. This blog post has just touched upon the surface of these concepts, but it is important for crypto exchanges to embrace the same levels of regulatory requirements, certifications and internal processes that more established financial institutions use. Please feel free to comment with your experiences, and share to help get the word out!