The Role of KYC Verification In AML For Crypto Assets

Money Laundering & Virtual Assets – An Introduction

KYC Verification & AML for Crypto assets

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. The overall quantity of money that goes through the laundering cycle is impossible to measure due to the secretive nature of money laundering.

The rise of cryptocurrencies & virtual assets are inextricably tied to the digital trends responsible for the advances in fintech and automation seen today. Unfortunately, while cryptocurrency allows for cheaper and faster international transactions, it also allows for illicit activity such as money laundering and terrorist financing.

Regulatory organizations are enacting strict anti-money laundering (AML) regulations to stay ahead of financial crime. AML regulations for bitcoin and other crypto-exchanges are also being discussed and mandated, to reduce the inherent risks of money laundering for virtual assets.

AML procedures that are effective involve reliable Crypto KYC methods for identifying and verifying users. Authorities expect that doing so will uncover any questionable activities in the crypto sector and make the sector transparent and secure.

Crypto KYC providers for cryptocurrency exchanges improve the security of both the traders and the trading platforms. It also guarantees that the services are used appropriately and legitimately. It not only ensures that regulations and laws are followed, but it 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. Around $2 trillion of this is being laundered.

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 In Crypto Due Diligence

As the banking industry undergoes structural changes, cryptocurrencies are redefining how transactions are carried out. 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 trade are clearly subject to anti-money laundering regulations, according to the Fifth and Sixth Money Laundering Directives (AMLD 5, AMLD 6) in Europe and FinCEN’s Final Rule in the United States.

To safeguard against financial crime and money laundering, a comprehensive AML programme and crypto due diligence procedures that help identify and protect against suspicious activities must be in place. 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. Although KYC requirements for crypto exchanges vary, the purpose remains the same for all: to ensure the safety, transparency, and fair trading of crypto assets and cryptocurrencies. The appropriate crypto due diligence processes need to be put in place by integrating with crypto KYC providers.

  • Increasing client confidence:

It’s one of the most critical criteria for crypto KYC 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 the risk level of each customer, identify potential dangers, 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 a risk assessment of individual customers. Cryptocurrency exchanges will be able to identify potential risks and hazards earlier and establish appropriate procedures to prevent fraud, scams, and financial crimes.

Fully-Verified crypto KYC provides a variety of services that assure adherence to the most stringent standards, as well as safety and thorough identity verification and due diligence, which includes:

  1. Live-Verify

In order to assure the highest level of compliance and safety, a video identity verification solution was developed. The procedure entails a live video chat with a highly trained operator who, using AI and machine learning techniques, verifies a user’s identification, as well as the legitimacy and legitimate ownership of the supplied identity document. The entire procedure is recorded, and the video can be seen again.

2. Self-Verify

Automated video identity verification technology that allows users to verify their identities without the presence of an operator. However, after the verification is accomplished, the entire procedure is recorded and double-checked by a professional operator.

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. Even though customers are required to submit some very sensitive information about them as a person, this process seems a lot worse than it is.

  • 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. That code must be input on a specific page during the verification procedure to ensure that they have access to that mobile phone in the event of an emergency or during the password-recovery process for an account.

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 types of identification documents one needs are determined by how much money the person plans to trade on the cryptocurrency exchange. Larger sums necessitate more stringent verification and, as a result, more sensitive personal information.

This process of personal identification can be expedited and streamlined by integrating with AI-powered verification solutions that use 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.

Crypto Assets and KYC Verification: Finding The AML Balance

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 KYC can help protect your exchange from financial criminals, manual processes come littered with their own challenges, such as costly third-party services, long wait times, and 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 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.

With cutting-edge compliance technology, our verification solutions have helped our 250+ clients save onboarding costs, reduce KYC drop-offs, shorten TAT by 99 percent, 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.

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