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Here’s How Compliance to KYC and AML Regulations May Help Crypto Rebound

  • Richard Marley
  • December 10, 2018
  • 5 minutes read
  • 5871
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Cryptocurrency was the talk of the day in the months and even years leading up to the present weeks. Very recently, we have seen a drop in the mentions of cryptocurrency in online world. In early 2018, the value of cryptocurrency and tokens in the market was above $800 billion. This number has dipped below $180 billion, showing a fall of more than 75% in the previous 5 months.

Lack of Compliance to Regulations in ID Verification

The non-compliance to the laws set forth by national and international watchdogs with regards to AML compliances and KYC regulations has definitely been a major push for the downfall of the use of cryptocurrency, globally. There were high risks associated with the crypto trading because the KYC and AML regulations during the ID verification process were not being complied with, majorly. One reason may be the lack of awareness for the need of an automated identity verification system when trading cryptocurrency. Whatever the case may be, the crypto market has not proved to be safe enough for blockchain businesses and online platforms due to the increased rate of scams and frauds.

Another reason was the irreversible nature of the cryptocurrency transactions. This made it an easy target for people looking for a perfect means of money laundering – an ungoverned method of money transfer, i.e. cryptocurrency. Online and blockchain businesses found this to be a major issue. They found it tedious and cumbersome to take necessary steps for KYC and AML compliance for ID verification. Some of the countries had a specific set of rules that needed to be followed by the companies under their jurisdiction, in addition to the basic KYC and AML regulations. This put a lot of unwanted burden on businesses, which lead them to drop the idea or usage of cryptos and blockchain for their ventures, be it for a token sale or general payment transactions.

An American Economist, Mr. Rogoff said,

“I think bitcoin will be worth a tiny fraction of what it is now if we’re headed out ten years from now. Basically, if you take away the possibility of money laundering, tax evasion, its actual uses as a transaction vehicle are very small.”

(An interview with CNBC, quoted by express.co.uk)

This has proved to be surprisingly true as the situation stands today.

Stabilizing cryptocurrency through conventional Financial Regulations


The KYC and AML regulations are enforced by the FATF, an international organization responsible for the fight against terrorism and criminal activities. Their major regulation with regards to the cryptocurrency is centered around the idea that a money trail needs to be left behind, because if that is done, then money laundering can be prevented by tracing it back to the origins.

This can be done by the successful integration of KYC and AML solution in the systems at the banks, financial institutions, online businesses, payment processing platforms, blockchain businesses, etc. All the transactions in the crypto space are through wallet addresses and do not require personal details of the sender or the receiver, like name, DoB, etc. This further leads to the anonymity of transactions, and the laundered money is even harder to trace back to the source.

With KYC and AML services installed in the system, before every transaction is processed or the money is received by an individual, they would be required to go through an identity verification process, which would act as a record of their involvement in the process.

The Shift of Physical and Online Businesses to Blockchain

Another solution to stabilizing the cryptocurrency can be shifting the digital businesses to blockchain technology. The blockchain is a ledger that keeps a record of all transactions that occur. Even though with blockchain we can trace the transactions back to their original source, that alone is not enough to make exchanges secure. There are a lot of ways to dupe the blockchain system without the integration of KYC and AML integration in the ID verification system.

Merely recording the details of transactions does not ensure that the person performing the exchange is the same as the one whose credentials, account or identity are being used. In order to makes sure that the sender and the receiver are who they say they are, there needs to be an identity verification system in place. This system should be able to identify a person based on their ID documents and facial features. Many AML softwares also run the sender’s credentials against sanctions lists, watchlists and global government databases to screen for PEPs in criminal and terrorism lists.

If the person clears all the checks, only then can the transaction be processed. This not only leaves a proof in the form of images or videos but also helps the businesses keep a track of where their exchange went sideways. All in all, it will suffice to say that inclusion of KYC and AML in the ID verification process, along with a more controlled, and governed blockchain-based businesses can definitely help bring cryptocurrency back.

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