The crypto industry has topped all charts with an enormous amount of consumer interest and increased popularity all over the globe. With the rise in demand, currencies like Bitcoin are looking to increase transaction capacity to meet the growing needs of businesses and consumers alike. But all this hustle and bustle has created opportunities for criminals to carry out nefarious activities. As a result, regulatory authorities have increased scrutiny to keep the market safe from bad actors and protect crypto exchanges, keeping them safe from money laundering.  


The Need for KYC in Crypto

Businesses that accept crypto as a payment or Virtual Asset Service Providers (VASPs) – those who offer cryptocurrency as a source of money – need to make sure proper identity verification service standards are intact. KYC compliance in crypto exchanges ensures that consumers and the exchange is secure, reliable and on-the-go. 


Cryptocurrency Regulations in the EU

With the advent of the “Digital Finance Package” introduced in September last year, cryptocurrency exchanges in the European Union have become much more transparent and secure. Apart from that, the MiCA – the ruling on regulations in European crypto markets – lists guidelines on how to practice KYC for a safer consumer experience. 


Cryptocurrency Regulations in the US

Even though in the United States there has not been much development in KYC crypto regulations. There are still some essential laws worth mentioning. Moreover, the statement issued by the Office of the Comptroller of Currency (OCC) to hold Stablecoin reserves as a service for bank customers has paved new opportunities for Know Your Customer regulation in the US crypto landscape. 


How Does KYC Build Better Trust? 

Since there are many countries that now support, accept, and produce digital assets and cryptocurrencies. They all have a different way of interpretation, which makes it even harder to develop a centralized KYC program. In this regard, there do exist some common aspects that can reduce the burden on compliance teams. And help them develop systems that are much more effective and consumer-centric. 

These KYC standards will not only ensure that crypto transactions are much more transparent. But will also make the industry and market a safer place for investors, consumers, and service providers alike. The Financial Action Task Force (FATF) also plays a vital role in creating international standards and guidelines. Businesses can adopt to prevent money laundering. These standards can also be practiced in the crypto industry to prevent and mitigate risks.  

Flag Indicators for Know Your Customer 

KYC regulations and requirements fall under AML obligations that every business and financial organization must fulfill.  To carry out customer verification based on these set standards, crypto platforms need to develop a risk-based approach where every consumer is properly identified through their identity document before they actually avail services. Below are enlisted some flags/parameters for KYC verification that indicate the risk associated with customers and transactions: 

  • A single user creates many accounts with different names
  • Personally identifiable information (PII) of the customer  is either incomplete or inaccurate
  • The document present by the potential customer is either fake, potentially photoshopped, or consists of falsified identity information
  • KYC indicators also include individuals placed on various watchlists and sanction lists
  • How often does a customer update or change their identity information 

While verifying customers dealing with cryptocurrency transactions. This allows exchanges and platforms to enforce better KYC standards. As well as prevent financial crime to make the crypto market a safer place.

By noah

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