The early days of cryptocurrency were based around the idea of anonymity. However, to bring the asset type into the financial ecosystem, this has changed. Know your customer services aim to ensure cryptos cannot be used for illicit activity.
Despite their efforts, there is still a rising threat for money laundering. A report from Chainalysis found that criminals laundered $8.6bn of cryptocurrency in 2021, an increase of 30% on the previous year.
The aim of bringing KYC to the cryptocurrency market is to prevent the use of the assets in illicit activity and trace transactions that may be indicative of crime.
Regulators around the world are putting more focus on cryptocurrencies and trying to foster more protections. Around the world, cryptocurrency exchanges are required to conduct KYC.
Its report highlights a the steps needed for crypto KYC to work. The first is identifying customers by collecting their personally identifiable information, such as their full name, place of residence, date of birth and address.
After this, the firm compares the information with official documentation presented by the individual, such as passport or driver licenses, as well as proof of residence, such as a utility belt.
Finally, the company runs the customer’s identity through official databases containing data on PEPs and sanctioned individuals.
It said, “Financial institutions should follow these steps to identify whether a client is at risk for money laundering and financial crime as a result of using virtual currencies. As long as everything appears to be in order, the customer can use the cryptocurrency exchange for certain activities.”
The report also states that while KYC in crypto is rising, many in the community are still struggling with getting it in place. It is possible to buy crypto without KYC checks, but it is harder and riskier than using an exchange with KYC requirements.
It will also become even harder to buy without KYC checks. It said, “Those who conduct cryptographic operations on the European market are now required to abide by the Fifth Anti-Money Laundering Directive (AMLD5). Such companies must figure out how to do KYC for crypto of their customers. The challenge is to re-think the KYC and AML procedures used by these platforms so that we can improve and make these processes more sophisticated and effective.”
Electronic IDentification helps clients in the crypto sector to promote blockchain KYC and boost security in the sector.
Read the full report here.
Copyright © 2022 RegTech Analyst
Copyright © 2018 RegTech Analyst