Cryptocurrency Exchanges and negative KYC Compliance

  • Richard Marley
  • July 03, 2018
  • 4 minutes read
  • 4733

KYC & AML Compliances are not being upheld by almost 68% of the cryptocurrency exchanges around the globe. Only 32% have been found to be fully following the compliance rules.

This means that one way or another, once the revised AML directives are in place in the year 2019, these companies will have to completely reform the way they operate, in accordance with the EU Regulations.

An analytics study conducted by the P.A.ID Strategies disclosed the non-compliance of more than half of the cryptocurrency exchanges based in the U.S. and EU region.

Reasons of Non-Compliance

With a sample size of a quarter of a hundred, P.A.ID Strategies proved that many of the crypto exchanges fail to verify the identity of their users. Majority of the Cryptocurrency exchanges take place without requesting any substantial proof of identity or official documentation to screen the user before permitting the exchange. The general practice entails asking the user merely for their mobile number or email address.

This information is nearly not enough to carry out IDV or risk assessment checks. In addition, they can easily be obtained from various other sources. It is not uncommon for people to update their contact information, especially email addresses, on their social media profiles. Being highly prone to identity theft, this data definitely requires substantial refinement and close scrutiny.

AML Compliance for Cryptocurrencies

After May, 2018, the GDPR regulations came into place, which required the companies, ICOs and Cryptocurrency exchanges that are located in the EU region, to update their data protection and access policies. Similarly, in June, 2018, the EU launched a fourth AML directive that was basically directed at combating the cryptocurrency crimes and curb terrorist financing. The directive explained in great detail how the organisations must update and maintain their AML screening processes. If unfollowed by any, strict actions (e.g. they may be sanctioned)  are in place to ensure complete order and protect the virtual marketplace.

A fifth AML directive is also set to come forth in June 2019, which is expected to enhance the security systems by enforcing stricter laws.

Effects of KYC on Cryptocurrencies

Rest assured, the crypto world would be a much better place with secure transactions. Following KYC & AML regulations would limit the number of frauds and prevent huge losses. Crypto crime can be reduced if the identity of the investors for ICOs and users at the Cryptocurrency exchanges is properly and thoroughly verified. Their complete information must be requested and matched against their original, state-issued ID documents. The authenticity of those documents must be checked as well. This will combat forgery and identity theft issues, hence, diminishing incidences of money laundering, terrorism and stolen cards.

If users are to trust the cryptocurrency exchanges, the only way to do that is to ensure that their transactions are safe, their money is not going towards any illicit causes, and that if their identity gets stolen, then their funds are not being wrongly used/accepted at the exchanges. Yet, up until this point, the cryptocurrency exchanges are failing to comply with the KYC & AML regulations, resulting in higher frauds and consequently, higher losses.

The easiest way for companies in the EU to secure their assets and finances is to employ identity management softwares that are easily integrated within their systems.

Shufti Pro solves these issues for you by providing a global service for IDV and AML screening. Our readily integrate-able RESTful API and SDKs make it a complete and hassle free package for your needs.

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