Money laundering is becoming a rapidly-growing problem worldwide, with nearly $800 billion to $2 trillion worth of FIAT or digital currencies transferred illegally in 2021. According to UNODC, this equates to 2 to 5% of the global GDP being used to finance and sustain criminal activities worldwide. Due to the decentralized nature of Cryptocurrencies and their cheaper, faster international transactions, the Crypto sector is becoming a smart alternative for criminals to move illegally-acquired funds or assets.
As a result, many regulatory bodies have installed anti-money laundering (AML ) legislation to minimize or prevent money laundering and illegal transactions via Crypto exchanges and platforms.
One of the most popular methods to curb these activities is Know Your Customer (KYC) protocols that enable platforms to verify their users’ personally identifiable information (PII) and run them against AML databases.
In this post, we’ll share the KYC requirements for Crypto exchanges and users so you can ensure compliance with the regulatory bodies.
Is Know Your Customer (KYC) Mandatory for Crypto?
KYC has been deemed mandatory by most countries and crypto exchanges. In 2018, these platforms were redefined as money service businesses, which made them subject to anti-money laundering guidelines. The transition began in the European Union, where most Crypto-FIAT platforms and wallet providers now comply with AMLD5 regulations.
While some platforms still allow transactions without KYC, they do not encourage the practice, which is why they have put limits to control the transfers. Moreover, many Crypto-only platforms also use KYC to attract new users, build trust, and maximize transparency.
KYC Requirements for Exchanges
Crypto exchanges or platforms looking to comply with AML regulations and use KYC checks as their preferred Customer Due Diligence (CDD) method need to acquire the following information during their user onboarding process:
§ Full name
§ Contact number
§ Date of birth
§ Government-issued identification, e.g., social security number
§ Residential address
§ Driver’s license
§ Proof of income, etc.
These platforms then have to create a seamless KYC check process for users, which includes:
This step involves acquiring the required personal information (typically an online form).
This step involves integrating different tools or solutions to determine whether the user is a real person. The most popular method for this is using different types of Captchas (text, image, puzzles, logic questions, etc.)
This step involves running the acquired information on AML or government databases for confirmation and criminal filtering. Many exchanges use this process to verify the user’s address and determine their risk category according to their country. For instance, the AML lists Afghanistan, Kenya, Haiti, Laos, and the Cayman Islands as some of the major ML countries.
KYC Requirements for Users
Similarly, users must comply with AML regulations and provide their PII to crypto exchanges and similar platforms. In many cases, your full name, address, and contact information should suffice for this purpose. However, many services require users to submit more documentation, especially if they intend to make large transfers or withdrawals. This could include your passport, proof of residence (utility bills), or even a military ID if you have one.
Many platforms require visual proof to verify the user is the same person providing the documents to prevent identity theft. Thus, they may prompt users to take a live selfie for their biometric facial recognition system at the time of registration. Complex systems conduct a thorough Liveness Detection check by asking users to blink, turn their heads, or smile, among other things.
So, there you have it – the key KYC requirements for users and crypto exchanges. With this information, both parties can ensure that they comply with AML regulations and accelerate the verification process at both ends.
StaySAFU is one of the fastest-growing Crypto KYC enablers in the market that enables businesses to quickly equip their blockchain or DeFi project with a clean and secure KYC. So, get in touch with our team to learn about our process and other services/solutions.