The crypto industry is still young, and its regulatory landscape is not fully established or consistent across different jurisdictions. As a result, businesses and individuals operating in this space must navigate a complex and often shifting set of legal standards and compliance requirements.
Anti-money laundering (AML) and know-your-customer (KYC) are standard cryptocurrency compliance services. They apply to regulated crypto exchanges and digital asset service providers that aim to comply with regulations. These services are essential for cryptocurrency businesses to operate legally and to protect against involvement in illegal activities. Today, we will explain the meaning of KYC and AML for crypto.
What is AML?
In 2014, the Financial Action Task Force (FATF) extended AML measures for the regulation of activities and services related to crypto assets. Since then, they have been adopted by other global regulating bodies, such as FinCEN and the European Commission. Companies that provide virtual asset services (VASPs) (crypto exchanges, crypto issuers, etc.) must comply with blockchain AML procedures. These rules include:
● Know-your-customer (KYC) procedures
● Customer due diligence (CDD) and enhanced due diligence (EDD)
● Transaction monitoring
● Record-keeping
● Reporting
● Compliance program
● Appointment of a compliance officer
● Employee training
● Risk assessment
● Conducting AML audits for digital assets and improving AML procedures.
As soon as financial crimes are detected, VASPs report this activity to FATF for further investigation. Illegal actions and bad actors are recorded in a global database.
Regulated exchanges often allow their clients to check the legality of their counterparts’ wallets and funds. For that purpose, they offer an AML check tool (example: https://whitebit.com/aml-service). Users enter the wallet address and the token to check if the funds are associated with illegal activities before proceeding with transactions.
What is KYC?
KYC verification is a tool for identity verification as part of the AML due diligence for cryptocurrencies. Crypto-related companies must verify the identity of their clients through reliable, independent source documents and data sources. It includes obtaining customer names, residential addresses, and official government-issued ID numbers.
Identity verification solutions may include:
● Identification via a global database of IDs
● Biometrics verification technologies
● Sanctions screening
● Transaction monitoring
● Identity verification across several data sources and credit bureaus.
Crypto exchanges and other VASPs need to master technologies and tools to ensure compliance and detect and prevent financial crimes. Since regulations in the crypto industry are under development, companies need to stay abreast of any updates and changes in regulations in the jurisdictions where they operate.
