If you come across cryptocurrency exchanges and other organizations that are related to money, you definitely know about KYC. All such companies must follow the Know Your Customer procedure. What is KYC in crypto? For example, if you launch a bitcoin exchange, want to register an ATM or exchanger, launch an ICO — in all such cases, you must comply with the KYC requirements.
Bitcoin is the world’s first successful attempt to create a decentralized economic structure. Many followers of cryptocurrencies believe that the market should be outside the law, especially outside the set of rules such as ‘Know Your Customer’. But exchanges have long been a centralization point in the crypto community. With their help, regulators impose rules on the market. And if an exchange wants to exist, then it must comply with the accepted rules.
So how are companies required to ‘know their customer’? What are the risks of non-compliance with KYC requirements? What is KYC crypto? Our today’s article will help you to find out!
What Is KYC Crypto: Main Definition & Explanation
What is KYC in cryptocurrency? Firstly, let’s consider KYC in a nutshell! KYC is part of an anti-money laundering program that was developed after the 9/11 attacks. The rules were designed to make it harder to launder money or finance terrorist organizations.
The Financial Crimes Enforcement Network doesn’t establish precise KYC requirements. However, there is a list of information to know about clients. If the business is somehow related to money, the following data is usually collected from a client:
- Full name,
- Date of Birth,
- Residence address,
- Photos of a passport or other identity cards.
Some institutions request a bank statement, various proof of residence at the current address, photos of a bank card, etc.
This is a rather complex procedure. It’s designed to protect an organization from involvement in money laundering, the promotion of terrorism, and corruption. So, what is KYC in crypto?
Know Your Customer is a policy that banks, financial institutions, and other regulated companies enforce to verify the customer’s identity, which is necessary to do business with them.
Along with KYC, you can hear about AML. It’s a set of procedures, laws, and regulations designed to prevent illegal activities in the financial sector, including terrorist financing, securities fraud, and market manipulation.
Banks spend a lot of money to comply with KYC. This is a significant item of expenditure for any financial institution. The rules are getting more complicated from year to year, and the fines continue unabated. All suspicions of the client’s illegal activities are referred to the appropriate authorities, and the accounts are quickly blocked.
What Is KYC in Crypto: What Should You Know?
What is KYC in cryptocurrency? Well, the crypto community has been relatively free from these procedures until the last three years. But the closer the attention of regulators, the more often KYC is indispensable. Regulators insist on KYC and AML, as without them the industry cannot be legalized.
When cryptocurrency was in its infancy, the industry was completely unregulated. Decentralization and anonymity are important aspects of the field that attracted the first like-minded people. So, what is KYC crypto? How does it look like? Switchere considers this in the next section!
What Is KYC in Cryptocurrency: What Data Do Crypto Exchanges Require?
The current compliance situation on the cryptocurrency market is almost the opposite of that in classical financial markets. All the studies conducted on this topic show that most cryptocurrency exchanges don’t meet the requirements. What is KYC crypto?
Well, most platforms only ask for an email address and phone number, which means they know almost nothing about their customers.
This is the main reason why the vast majority of banks are hesitant to work with cryptocurrency exchanges. In other cases, banks force them to change legal entities.
Today, most exchanges require:
- Passport or other identity cards;
- Sign with the date;
- Verified email address.
It’s difficult to say whether this is enough for the KYC procedure or not. However, everything is about the degree. Let’s consider the Switchere platform as an example.
Due to the implementation of the 5th EU Anti-Money Laundering Directive, the exchange operations are available to Switchere.com users after completing registration and identity verification. Thus, users have to pass identity, address & proof of income verification processes.
What is KYC in crypto? What other interesting information about KYC do you know? Feel free to share your knowledge in the comments!