Money laundering is the major risk faced by the cryptocurrency sector these days. While cryptocurrency provides faster and cheaper transactions, it also enables criminals to take advantage of the vulnerable process for money laundering and terrorist funding ambitions.

Crypto has been the talk of the town since 2009, it has attracted investors very quickly. The nature of the crypto i.e. virtual makes it completely volatile. As it is not regulated by any central body, the chances of financial crimes and black money involvement are very high. Digital currency has international coverage and customer anonymity, which is an ideal situation for money laundering.

Considering this situation, countries have put efforts to control the illicit flow of funds in cryptocurrency. Global regulators have also agreed to the fact that despite the hidden nature of virtual currency, it needs strict KYC and AML regulations to mitigate the hazards of money laundering and other financial crimes. 

Crypto Trading Reality

There is also a thought that regulations might affect the crypto business and coin trading, but they will help streamline the market. Some people think that crypto trading is not safe and do not put their funds in it because of the peril of scams.  Regulations will build confidence among new traders and investors, also pushing them to invest in crypto.  The criminals in the crypto ecosystem can be spotted and eliminated through laws and their implementation. 

Regulatory bodies have launched stringent anti-money laundering regulations to prevent money laundering through exchanges in cryptocurrency. Strong AML process includes flawless KYC processes to verify end users. With this process, authorities aim to remove suspecting activity in the cryptocurrency sector. However, for cryptocurrency trade-offs, this also means more costly onboarding and can be exposed to data infringement. As regulations begin to increase at an alarming rate in the world, manual KYC procedures will not be able to intercept it.

What is Anti-Money Laundering (AML)?

As clear by the name, it means combating money laundering. Criminals tend to hide their ill-gotten funds in the system by legitimizing them through money laundering. AML acts as a shield protecting the financial sector from money laundering. 

In this era, where everything is done using software, why not use them for anti-money laundering.  AML software is used for combating financial crimes in the system. These solutions help in identifying potential money launderers and suspicious transactions. Here, we will discuss both the procedures in detail;

AML Screening

Under the risk-based approach of AML, new customers are screened against the database of criminals and high-risk entities. The database includes a variety of lists like sanctions, PEP adverse media. The automated solution scans the name with these lists and identifies potential money launderers.

Transaction Monitoring

The financial transactions are screened and risky or suspicious ones are spotted. This is done by AI algorithms which point out any transaction that carries even a chunk of illegal funds. 

AML screening and transaction monitoring are the primary requirements of AML regulations, and non-compliance with these can result in fines and sanctions by law enforcement authorities. 

Importance of KYC for Cryptocurrency Exchanges

Money laundering is increasing at an alarming rate of  2 – 5% of global GDP. With the Implementation of KYC regulations, businesses can deter this global threat. But why is it necessary for cryptocurrency exchanges?

KYC Verification Requirements For Cryptocurrency Exchange

There are different rules and regulations for each country dealing with cryptocurrency. Occasionally, there will be different KYC regulations for cryptocurrency exchanges operating in the same country, depending upon the interpretation of the law.   

Here are some of the familiar that you might run into on different exchanges:

  • Full name 
  • Date of birth
  • Email address or contact number
  • Address details
  • Government-issued ID image
  • Utility bill
  • Photo Identity

KYC is done remotely, the customer just had to provide the image of ID to the software. It extracts the required data from the image and then validates the information. 

Wrapping it Up

KYC in crypto can verify new investors and traders, which will eradicate the involvement of criminals and potential money launderers. The verification is done against the government-issued IDs, giving complete authenticity during the process. 

Click here for more information about KYC crypto.