Crypto Kyc Laws

Crimes such as identity theft, money laundering, terrorist financing, organised crime and tax evasion are targeted by regulators. KYC means that cryptocurrency transactions are more secure, which improves the financial landscape. But it`s one thing to recognize the need for KYC compliance, and another to implement these rules at scale. Here`s what crypto companies need to know to know their customers and ensure KYC compliance. The legal status of crypto companies depends on existing anti-money laundering policies and how countries implement them. In recent years, such policies have increasingly restricted crypto-asset transactions and made KYC checks mandatory for a wider range of operations. For example, in 2018, the European Union included crypto-fiat exchanges and wallet providers in the scope of its AML regulations (AMLD5), which means that they must comply with the same rules that financial institutions Uniswap and Bisq are widely used decentralized exchanges without KYC. On these platforms, cryptocurrency sellers are matched with buyers based on order prices and volumes, adding and subtracting a “liquidity pool.” A liquidity pool is a pot of crypto assets used to complete the buy and sell orders that appear. End-users provide non-centralized assets and liquidity providers. This rule applies to any crypto entity that could be classified as a money services corporation defined as “a person, wherever located, doing business, whether or not, or acting as an organized or licensed corporation, in whole or in substantial parts in the United States,” directly or through an agent. An agency, branch or office that acts as a “money transmitter”, among other things.

FinCEN has expanded the term “money” to cover any “value that replaces currency,” which includes virtual currencies and cryptocurrencies. When it comes to KYC, crypto companies are best served with IDV solutions that offer robust global coverage, optimized user experience, automation, and multiple types of verification for different risk profiles and use cases. Persona is the only identity platform that gives organizations the building blocks they need to build their ideal KYC program, as well as automation and orchestration tools to streamline the entire process from start to finish. While cryptocurrency exchanges are now subject to the same rules as their traditional financial counterparts, some have resisted regulation, arguing that collecting this data undermines the anonymous nature of crypto. Other exchanges require clients to upload identity data when creating accounts, but allow immediate access to trading before verifying that data – privileges are only revoked if KYC checks reveal something worrisome. Still others have decided to opt out of U.S. KYC regulations by suspending access for U.S. users. Money laundering has skyrocketed worldwide, accounting for about 5% of global GDP. Implementing processes such as KYC is helping financial institutions manage this international pandemic. But why is KYC especially useful for crypto exchanges? A number of startups are now specifically dedicated to solving KYC problems for crypto companies. ID verification startup Passbase provides apps with a tool that allows their users to upload a selfie with their ID for quick verification.

The company raised $13.5 million in seed and Series A financing. Despite attempts to shorten or circumvent regulations on KYC cryptocurrencies, the growing cryptocurrency market and more common appeal virtually guarantee that KYC rules will not only be extended to exchanges, but will also result in increased regulatory enforcement. There is no escaping it. AML compliance becomes mandatory for cryptocurrency exchanges and custodians. This means that effective KYC procedures must be in place. For cryptocurrency exchanges, AML programs are indispensable, both to protect against financial crime and to comply with increasingly stringent regulations. One of the main components of an effective anti-money laundering policy is KYC. While KYC is not mandatory for all pure crypto exchanges, these processes should be implemented to manage the risk of money laundering and terrorist financing. While most popular exchanges are now implementing KYC procedures, some exchanges and wallets are still hesitant. CAP refers to the process of identifying new customers using official documentation. CIP is the process of verifying a client from this documentation and using official databases. Continuous monitoring means that crypto exchanges must have systems in place to identify suspicious transactions and ensure that customer data is up to date.

Are you ready to learn more about how Persona can help ensure KYC compliance on your crypto exchange? Let`s talk about it. Sumsub has already written a number of detailed articles on national crypto regulations. Check out our guides to get an in-depth understanding of each jurisdiction: for cryptocurrencies to reach the level of mass adoption and disrupt the financial sector, trust must exist. Since virtual currencies and exchanges have a history of hacks and scandals, new customers find it difficult to trust cryptocurrency. For exchanges to work, people need to exchange coins, and to exchange coins, customers need to trust that their money is safe. Since regulatory raids and the requirement for crypto companies to have strong AML programs as part of their licensing requirements, there are virtually no crypto companies that don`t perform KYC for cryptocurrency. Financial institutions must follow these steps to determine if a customer is at risk of money laundering and financial crime due to the use of virtual currencies. As long as everything seems to be in order, the customer can use the cryptocurrency exchange for certain activities. As the structure of the financial industry evolves, cryptocurrency is reinventing the way transactions take place. At the same time, virtual currency has invaded to offer new international exchange solutions.

In the EU, the legislation for fiat-to-crypto exchanges and crypto-to-crypto exchanges differs. Any cryptocurrency service that allows a customer to switch from fiat currency to crypto must implement KYC. Exchanges that deal exclusively with crypto don`t. For example, a new rule proposed by the Treasury Department in December 2020, along with the classification of exchanges as an MSB, would require users who wish to transfer cryptocurrency from a centralized exchange to a personal wallet to provide personal information about the wallet owner if the transaction amount is greater than $3,000. If the transaction amount in a day is more than $10,000, exchanges must both receive personal data and send information about the transaction to FinCEN. While the rule may not be adopted exactly as it is currently described, it is likely that some form of this regulation will be approved next year. As a result, there is virtually no crypto exchange without KYC. It is very rare today to buy crypto without KYC and not be subject to KYC crypto regulation. KYC for crypto exchanges has now been made mandatory by regulators around the world. KYC and the Crypto Travel Rule are two crucial terms in any discussion of compliance issues related to cryptography. Simply put, KYC involves the collection and transfer of data about individuals and businesses using the services of a financial institution (FI) or virtual asset service provider (VASP).

In contrast, the travel rule involves the collection and transmission of data on the counterparty to transactions that an IF or VASP authorizes. Bitfinex approaches the KYC problem in a completely different way. Although the platform supports various fiat currencies, users who exclusively use cryptography do not need to fill in KYC. Users can deposit, exchange and withdraw cryptocurrencies without any identity verification procedure. To deposit and exchange fiat, users must verify themselves with an address, phone number, proof of address, and two forms of government-issued ID. Take HitBTC, for example. This popular exchange does not require users to undergo an identity verification process. Users can deposit and trade cryptocurrencies without having to perform any form of KYC. HitBTC gives users the option to self-check and advises them to do so to “avoid any verification process in the future”. In the EU, AMLD5 covers the processes that institutions should follow to prevent cryptocurrency money laundering. The latest update includes cryptocurrency exchanges and custodian services, such as virtual currency wallets.