KYC in Crypto: Compliance and Customer Identification

Know Your Customer, KYC, is the check that crypto exchanges and trading platforms must conduct to verify the identity of their customers.

What is Know Your Customer?

A financial institution is obliged to verify the identity of users who use its platform. KYC means that a bank has to check the identity of those who use its platform. A measure intended to prevent money laundering and terrorist financing is KYC. KYC is a standard practice in the investment industry to make sure that advisers know specific information about their clients, as well as it cannot only be used for cryptocurrencies and other crypto exchanges.

Information can include a client’s investment knowledge, risk tolerance, personal details, financial situation. In cryptocurrencies, this usually involves asking for a photo ID. Credit companies, banks and insurance agencies often conduct KYC and require clients to provide all relevant information. The aim is to ensure that customers are not involved in corruption and bribery.

KYC is increasingly important in the world of global finance, to prevent fraudulent transaction. A number of KYC policies provide banks and other institutions with protections that help ensure the legitimate conduct of business.

KYC processes start by collecting basic data and customer information during electronic identity verification.This includes user name, date of birth, account number and social security details. Such data is important in identifying any fraud or financial crime.

After obtaining basic data, organisations check the database of persons convicted of corruption. Often a sanctions list and a list of politically exposed persons are checked.

When all the information is obtained, organisations can assess the level of risk associated with their clients’ involvement in corrupt or fraudulent activities. Cryptocurrency exchanges are under great pressure to implement KYC because of fears that criminals may use digital currencies to avoid detection.

Can you buy cryptocurrency without KYC?

It is possible to buy cryptocurrency without KYC, but you need to find an exchange or cryptocurrency peer-to-peer service without KYC requirements. Most cryptocurrency exchanges and services are required to follow the KYC and AML regulations of the country in which they are headquartered. But in the decentralized cryptocurrency space, you can find services that are not subject to KYC rules.

Using a service without KYC regulation means that the service may not be controlled by any regulatory authority. This can either be a neutral factor or a bad factor if the service turns out to be unscrupulous.

Some cryptoservices that are regulated and/or have done their due diligence allow their users to trade small amounts of cryptocurrency before requiring them to pass KYC.