Crypto compliance: what is AML / KYC and how does it affect cryptocurrency today
Today, almost everyone with internet access has heard of cryptocurrency, regardless of age. The cryptocurrency industry is no longer a nascent concept. Its market value has increased to reach trillions, growing into a monetary system. Unfortunately, money laundering poses a huge problem in crypto exchanges. The crypto space has become a playground for criminal activities. Regulators have realized this, and countries all over the world have started institutionalizing AML/KYC procedures in the crypto sector. This is inclusive of the Middle East region. Here is a brief starter pack on AML and KYC.
What is AML?
AML means anti-money laundering. It entails regulations, laws and policies designed to stop launders. The major purpose is to deter converting money from illicit activities to fiat money. In addition, AML procedures aim to reveal efforts to conceal illicit funds as legitimate income. AML compliance is a lot more comprehensive. It encompasses KYC compliance as one of its requirements.
A typical AML program includes KYC and monitoring of financial transactions to detect suspicious activity. In addition, companies and businesses bound by AML rules must conduct regular independent audits. Therefore, offering compliance training for staff is also crucial.
What is KYC?
KYC means Know Your Customer or sometimes Know your Client. It refers to the rules and steps used by a company or financial institution to verify their customers’ identity, risk, and financial profile. For example, KYC involves ID verification, face verification, and document verification, such as utility bills during opening or maintaining accounts.
This system helps prevent and identify money laundering and other criminal activities.
Typically, the KYC process includes:
- Verifying the client’s identity-customer due diligence (CDD).
- Screening the clients against prohibited list-crime suspects or companies and individuals under economic sanctions.
- Ongoing monitoring of the client’s transactions.
A good illustration of KYC compliance is our local banks. When opening an account, banks always have a biometrics verification check and verify if deposited funds are from a legitimate source.
AML/KYC and how they affect cryptocurrency
Cryptocurrency is an important innovation that has allowed individuals and institutions to access financial products and services faster. It has undoubtedly made international transactions a lot easier. However, it has also made the crypto sector a fertile ground for criminal activities. The anonymity of blockchain technology aids money laundering and terrorist funding.
More so, cryptocurrency is still relatively new despite its popularity. Hence, there are a lot of system gaps. Criminal activities are committed using these gaps.
Therefore, criminals try to keep the illicit method of making money a secret. They employ a variety of strategies involving cryptocurrencies to conceal it. Some of these tactics include placement, layering, and integration.
AML and KYC legislation need to be updated to include the cryptocurrency sector, wallets, and exchanges. Now, some exchange platforms, such as Coinbase, have made a deliberate effort. For example, they introduced digital ID verification, biometrics facial recognition and liveness detection. The aim is to verify the identity of persons that wish to sell and buy cryptocurrencies.
In conclusion, cryptocurrency regulations are essential for a secure and seamless journey. Some very important benefits of regulations include adequate protection of consumers’ and investors’ interests against fraud. The AML/KYC regulations also provide more accountability to people who trade and increase investor transparency.