In the evolving landscape of cryptocurrency, compliance obligations and regulatory scrutiny are increasingly shaping the industry’s trajectory. Given the magnitude of financial crimes and illicit activities, robust measures in anti-money laundering or AML in crypto transactions cannot be overstated.

Know Your Customer (KYC) verification is an essential step in AML compliance for crypto asset management. Its goal is to verify users’ identities and reduce related risks.

Money Laundering & Virtual Assets – An Introduction

Money laundering is a major issue all over the world, especially with rapidly growing trends of digitization. UN data suggests that the amount of money laundered internationally in a year is believed to be between 2 and 5% of global GDP, or between $800 billion and $2 trillion in today’s dollars. Due to the secretive nature of money laundering, it is impossible to measure the overall quantity of money that goes through the laundering cycle.

The rise of cryptocurrencies & virtual assets are inextricably tied to the digital trends responsible for the advances in fintech and automation seen today.  While cryptocurrency allows for cheaper and faster international transactions, it also allows for illicit activities like money laundering.

AML regulations for Bitcoin and other crypto exchanges reduce the inherent risks of money laundering for virtual assets. Regulatory authorities are enacting strict anti-money laundering (AML) regulations to stay ahead of financial crime.

Effective AML procedures involve robust crypto KYC methods for identifying and verifying users. This will uncover any questionable activities in the crypto sector and make the sector transparent and secure.

Crypto KYC providers offer KYC verification solutions for cryptocurrency exchanges to improve the security of both the traders and the trading platforms. KYC also guarantees that the services are used appropriately and legitimately. It ensures that regulations and laws are followed and also removes the chance of money laundering and other financial crimes occurring as a result of virtual asset trading.

AML Risks For Virtual Assets & Crypto-Exchanges 

The term “financial crime” refers to a broad range of illegal behaviors. Tax evasion, bribery, and corruption, as well as terrorist financing and internet banking hacking, are all on the rise. Financial crime costs the world between $1.4 and $3.5 trillion every year. Criminals are laundering around $2 trillion of this.

Crypto exchanges are vulnerable to large-scale financial crime, this was illustrated in 2019 when $4.26 billion was stolen from bitcoin users and exchanges. Once malicious users register with exchanges, they can be vulnerable to hacks, frauds, and phishing.

In a nutshell, the risk involves in cryptocurrency are:

  • Anonymous user accounts which pose a greater risk of money laundering and terrorist financing.
  • The inability to monitor and restrict transactions of users on watch lists or who have previously been implicated in financial crimes.
  • Fraudsters Use It As a Safe Haven as crypto creates a space to commit fraudulent activities, inadvertently.

The Need For KYC Verification and AML In Crypto Due Diligence

Cryptocurrencies are redefining how transactions are carried out as the financial industry is undergoing significant changes. Virtual money has rushed in to offer new options for worldwide monetary exchange at the same time.

However, this presents its own set of difficulties. One major issue is that criminals use anonymous cryptocurrency exchanges to launder their funds.

Money laundering regulations are becoming more stringent around the world. Virtual currencies and the exchanges on which they are traded are subject to AML regulations, according to the Fifth and Sixth Money Laundering Directives (AMLD 5, AMLD 6) in Europe and FinCEN’s Final Rule in the USA.

To safeguard against financial crime, a comprehensive AML program and crypto due diligence procedures that help identify suspicious activities must be in place. AML crypto KYC is emerging as an essential requirement for crypto exchanges and traders of virtual assets.

At the moment, crypto exchanges’ anti-money laundering rules aren’t up to par. According to a recent Coinfirm survey, 69 percent of the 216 crypto exchanges do not have “full and transparent ” know-your-customer (KYC) protocols in place, which is a critical component of a successful anti-money laundering (AML) programme.

The Advantages of Crypto KYC

It’s worthwhile to look at different financial organizations and industries to see why appropriate Crypto KYC procedures are helpful for cryptocurrency exchanges and their users globally. KYC ensures the safety, transparency, and fair trading of crypto assets and cryptocurrencies.

By integrating with crypto KYC providers, they can put  appropriate crypto due diligence processes in place.

  • Increased client confidence:

It’s one of the most critical criteria for crypto exchanges, particularly on peer-to-peer crypto trading platforms where users trade with one another.

  • Assessment of dangers & risks:

Crypto KYC methods and accurate user identification verification allow exchange platforms to assess each customer’s risk level, identify potential threats, and better manage certain groups of customers.

  • Reduced fraud risks & AML challenges:

One of the most critical aspects of ensuring the safety of any platform and its users is the risk assessment of individual customers. Cryptocurrency exchanges will be able to identify potential risks and hazards earlier and establish appropriate procedures to prevent money laundering.

How To Complete KYC in Crypto Exchanges

To utilize a crypto exchange properly, customers must first go through a “Know-Your-Customer” (KYC) verification process. Customers are required to submit some very sensitive information about them as a person and the process is very tedious.

  • Obtaining confirmation of phone number

Verifying the cell phone number is the first step. Most cryptocurrency exchanges will send users a code by text message to that phone number for crypto KYC. Which must be input on a specific page during the verification procedure.

Modern KYC verification solutions offer OTP verification to authenticate customers instantly & remotely.

  • Providing personal identification

This step normally entails presenting a digital copy of the personal identification to prove identity. These ID documents can range from a scan of a personal ID or driver’s license and a recent utility bill to a copy of the birth certificate or passport, depending on the cryptocurrency trading site used.

The kinds of identity documents required depend on how much the user intends to trade on the cryptocurrency exchange. Larger sums necessitate more stringent verification and, as a result, requires more sensitive personal information.

How Does AI-Powered KYC Verification Enhance AML Compliance 

The process of personal identification can be expedited and streamlined with AI-powered verification. It utilizes OCR & smart algorithms to scan, extract & verify data from documents. Digital KYC verification additionally leverages facial matching technology to reduce fraud and boost AML compliance.

Fully verified AML crypto KYC provides a variety of services that ensure adherence to the most stringent standards. It includes thorough identity verification and due diligence through video KYC:

    • Live-Verify :A video identity verification solution is used to assure the highest level of compliance and safety. The procedure entails a live video chat and digital document verification with a highly trained operator who, using AI and ML techniques, verifies a user’s identification, as well as the legitimacy of the supplied identity document. The entire procedure is recorded.
    • Self-Verify –Automated video identity verification technology allows users to verify their identities without the presence of an operator. After the verification is accomplished, the entire procedure is recorded and double-checked by a professional operator.

Streamline AML and Crypto KYC Verification With SignDesk 

Anti-Money Laundering or AML compliance is becoming compulsory for cryptocurrency exchanges and custodian services. This means effective Crypto KYC verification procedures need to be in place.

While traditional KYC methods can help protect crypto exchanges from financial criminals, they come littered with their own challenges. They often include costly third-party services and long wait times and can lead to data security breaches.

SignDesk is a multi-award-winning company that provides organizations with AI-powered verification and documentation solutions.

To automate and speed the crypto AML and KYC verification process, we employ real-time AI-powered document verification techniques. OCR-enabled picture data extraction, facial matching, and machine learning-based fraud filters are used to verify the traders.

With cutting-edge verification technology, our video KYC solution has helped our 250+ clients save onboarding costs, reduce KYC drop-offs, shorten TAT, and protect against fraud.

Our efforts to automate KYC have been acknowledged with multiple accolades, the most recent being the Best AI/ML Product at InnTech 2020 and the Best Digital Onboarding Product of 2020 from the Global Banking & Finance Review.

Book a free demo to see how video KYC makes verification procedures more efficient.