[ad_1]
Crypto KYC has become much more common in 2023. This is because crypto companies are becoming an increasingly significant element of the financial system, while terms like BTC, ETH, NFT have also become widely recognized worldwide.
Virtual asset service providers (VASPs for short) have played an important role in the growth of crypto and as crypto exchanges, and crypto wallets develop, so do new ways to use virtual assets illegally.
Money launderers are known for how quickly they can adapt to new paradigms in finance, and within crypto, it is no different.
New sophisticated ways of using virtual assets have prompted governments around the world to try to bring virtual asset service providers under AML (anti-money laundering) regulations.
Furthermore, based on these regulations, the Know Your Customer (KYC) procedure becomes mandatory.
KYC data refers to data collected from Virtual Asset Service Providers during their onboarding and transactions that verify client identity. This due diligence occurs because of the process’s compliance with the existing regulatory framework, namely related to Customer Due Diligence (CDD).
The purpose of KYC is simple: to identify clients and perform verification checks before granting them access to services or to make transactions.
KYC Process Explained
Crypto regulations can differ drastically from jurisdiction to jurisdiction and it is important to understand that clients will also be required to submit different types of data.
Usually, the absolute minimum KYC data collected is the client’s full name, their date of birth, and their residential address.
The data is cross-checked against government-issued documents that the client also has to submit.
Traditional Steps in the KYC Crypto Onboarding Process
There are several different stages in the process of introducing KYC, depending obviously on which company is doing it and the jurisdictions in which it operates.
In general, onboarding starts with an identification stage where the client sends his personal data. Typically, clients are asked to take photos of government-issued documents and mail them.
The document is checked for problems, errors, and so on as a way of proving its authenticity. The data on the document in question is also double-checked against user-submitted data.
Depending on the client’s address, it will be determined whether he is currently in a high-risk country.
Lastly, there is usually a liveness check where the user needs to prove his actual presence and a risk assessment stage where the client is assessed by risk category based on the overall evaluation.
What Types of KYC Crypto Checks Are There?
In essence, KYC procedures can be manual and/or automated.
Both options have pros and cons.
Manual checks are much slower than automated checks. They are also more expensive, and a bit more error prone as human involvement leads to a higher error rate.
As for the automated KYC processes, they are known to lower costs while speeding up onboarding.
The process is designed to extract data from user-provided documents and compare those data and documents against templates.
Why Do Crypto Companies Need KYC?
KYC checks are usually mandatory in most jurisdictions. As such, users are not allowed to buy crypto or withdraw their funds before completing and passing KYC checks.
But, even leaving legal obligations aside, being KYC compliant greatly helps crypto companies in many ways because the transparency it provides prevents money laundering and terrorism financing, helps fight fraud, and increases overall trust in both clients and investors.
Should You Get Involved with a Crypto Company Operating without KYC?
Non-KYC exchanges are usually unregulated and decentralized.
They are usually grown in countries where AML regulations are lacking (or almost non-existent).
There are some risks of using non-KYC platforms, but the main one is the increased vulnerability that clients have to criminals.
Wrap
The nature of Crypto lies in its inherent decentralization. It seems pretty certain that embracing KYC is in the cards for cryptocurrencies as it adds transparency while protecting users.
Many countries have stated their message loud and clear as they pursue AML requirements and laws that have increasingly tightened KYC and crypto.
However, with Web 3.0 on the horizon, the topic of decentralization is making a comeback as is the exciting new concept of online self-sovereign identity (SSI).
Will regulators consider that approach when dealing with KYC and crypto? That will most likely be the main question going forward.
For now, crypto-related businesses ensuring AML compliance undoubtedly rank highest among users and investors’ trust, and while full compliance may be a thorny endeavor, it seems highly rewarding.
Crypto KYC has become much more common in 2023. This is because crypto companies are becoming an increasingly significant element of the financial system, while terms like BTC, ETH, NFT have also become widely recognized worldwide.
Virtual asset service providers (VASPs for short) have played an important role in the growth of crypto and as crypto exchanges, and crypto wallets develop, so do new ways to use virtual assets illegally.
Money launderers are known for how quickly they can adapt to new paradigms in finance, and within crypto, it is no different.
New sophisticated ways of using virtual assets have prompted governments around the world to try to bring virtual asset service providers under AML (anti-money laundering) regulations.
Furthermore, based on these regulations, the Know Your Customer (KYC) procedure becomes mandatory.
KYC data refers to data collected from Virtual Asset Service Providers during their onboarding and transactions that verify client identity. This due diligence occurs because of the process’s compliance with the existing regulatory framework, namely related to Customer Due Diligence (CDD).
The purpose of KYC is simple: to identify clients and perform verification checks before granting them access to services or to make transactions.
KYC Process Explained
Crypto regulations can differ drastically from jurisdiction to jurisdiction and it is important to understand that clients will also be required to submit different types of data.
Usually, the absolute minimum KYC data collected is the client’s full name, their date of birth, and their residential address.
The data is cross-checked against government-issued documents that the client also has to submit.
Traditional Steps in the KYC Crypto Onboarding Process
There are several different stages in the process of introducing KYC, depending obviously on which company is doing it and the jurisdictions in which it operates.
In general, onboarding starts with an identification stage where the client sends his personal data. Typically, clients are asked to take photos of government-issued documents and mail them.
The document is checked for problems, errors, and so on as a way of proving its authenticity. The data on the document in question is also double-checked against user-submitted data.
Depending on the client’s address, it will be determined whether he is currently in a high-risk country.
Lastly, there is usually a liveness check where the user needs to prove his actual presence and a risk assessment stage where the client is assessed by risk category based on the overall evaluation.
What Types of KYC Crypto Checks Are There?
In essence, KYC procedures can be manual and/or automated.
Both options have pros and cons.
Manual checks are much slower than automated checks. They are also more expensive, and a bit more error prone as human involvement leads to a higher error rate.
As for the automated KYC processes, they are known to lower costs while speeding up onboarding.
The process is designed to extract data from user-provided documents and compare those data and documents against templates.
Why Do Crypto Companies Need KYC?
KYC checks are usually mandatory in most jurisdictions. As such, users are not allowed to buy crypto or withdraw their funds before completing and passing KYC checks.
But, even leaving legal obligations aside, being KYC compliant greatly helps crypto companies in many ways because the transparency it provides prevents money laundering and terrorism financing, helps fight fraud, and increases overall trust in both clients and investors.
Should You Get Involved with a Crypto Company Operating without KYC?
Non-KYC exchanges are usually unregulated and decentralized.
They are usually grown in countries where AML regulations are lacking (or almost non-existent).
There are some risks of using non-KYC platforms, but the main one is the increased vulnerability that clients have to criminals.
Wrap
The nature of Crypto lies in its inherent decentralization. It seems pretty certain that embracing KYC is in the cards for cryptocurrencies as it adds transparency while protecting users.
Many countries have stated their message loud and clear as they pursue AML requirements and laws that have increasingly tightened KYC and crypto.
However, with Web 3.0 on the horizon, the topic of decentralization is making a comeback as is the exciting new concept of online self-sovereign identity (SSI).
Will regulators consider that approach when dealing with KYC and crypto? That will most likely be the main question going forward.
For now, crypto-related businesses ensuring AML compliance undoubtedly rank highest among users and investors’ trust, and while full compliance may be a thorny endeavor, it seems highly rewarding.
[ad_2]
Source link
