Meeting the Challenge of Crypto Exchange KYC Compliance

Garient Evans, VP of Identity Solutions, Trulioo, explains what the most important KYC requirements are for crypto exchanges and offers tips on how to meet them

There is no denying the size and scale of the crypto-economy or the attention it attracts from regulators. According to a Reuters report as of May this year, there are 18,142 cryptocurrencies, 460 crypto exchanges, and the market capitalization cryptocurrencies regularly exceed $1 trillion. The data changes daily but, as of mid-August 2022, the average 24-hour trading volume of all cryptocurrencies globally stood at $66.7 billion.

Regulators who want fair and secure markets, free from money laundering and other financial crimes, are well aware of this phenomenal amount of activity.

Europe at the forefront of regulation

Along with the US, the UK and the EU are leading the way globally in implementing cryptocurrency regulations.

Recently, EU institutions announced agreement on two landmark pieces of regulation: the Crypto-Asset Market Act (MiCA), which regulates most cryptocurrency service providers, and a set of measures anti-money laundering imposing strict controls on cryptocurrency transfers. Earlier this year, UK Chancellor of the Exchequer Rishi Sunak presented a plan do the uk a global hub for crypto-asset technology. In July, the UK Financial Services and Markets Bill was released and for the first time included a provision for the regulation of crypto assets and stablecoins.

We are seeing similar movements elsewhere. The creation of the World Economic Forum Digital Currency Governance Consortiuma group of more than 80 organizations representing many industries and geographies, also aims, in part, to inform approaches to digital currency regulation.

Exchanges need KYC

Although each jurisdiction has different philosophies, models, processes, capabilities, and biases regarding crypto, the regulators’ goal is crystal clear. They want to protect consumers from scammers and illicit businesses. They also want to mitigate the use of crypto to facilitate nefarious activities such as financing terrorism, funding criminal enterprises, money laundering, and circumventing sanctions lists. They want to put in place the same due diligence standards that are required for traditional financial services.

The requirement for crypto exchanges to have a clear understanding of who their customers are highlights the importance of having the right Know Your Customer (KYC) program in place. This builds trust and privacy, which are two essentials for crypto exchanges hoping to scale to reach more consumers while complying with regulations. Exchanges need to ensure that their KYC and crypto compliance procedures are secure, robust, and defensible while protecting customer privacy.

Create a solid foundation for exchanges

Building a trusted ecosystem starts with providing compliance teams with systems that can quickly adapt to changing regulations and scale to meet growing demand from global investors. It also means having strong security measures in place that keep malicious actors out and protect customers’ personal information.

Finding the right balance between strong security and low-friction integration is key to delivering the experience customers expect when interacting with crypto exchanges. Complicated procedures and long wait times for approvals can cause clients to leave for another crypto exchange.

Simplified, low-friction digital identity verification (IDV) can be the cornerstone of crypto KYC. IDV can help align exchanges with privacy and security regulations and build consumer confidence in their data protection.

In fact, many European countries already have IDV requirements in place. In the Netherlands, customers must verify the ownership of their crypto wallet and describe the intended use of cryptocurrencies. Swiss users must prove their ownership of non-custodial wallets with verified documentation. In France, anonymous accounts have been banned.

The steady pace of new and adjusted regulations only increases the importance of crypto exchanges in finding trusted IDV partners.

KYC Endurance

KYC for crypto exchanges is here to stay. Regulatory involvement is increasing worldwide as the volume and speed of cryptocurrency transactions increase.

Flexible IDV solutions with broad international coverage, enhanced user experiences, fast results, and powerful security can position crypto exchanges to meet today’s KYC requirements and gain a competitive advantage in an ever-changing market.

About Garient Evans

Garient Evans brings over 20 years of credit, identity, fraud, document verification and compliance experience and expertise to Trulioo. He previously held leadership roles at Mitek, Socure as well as ID Analytics where he helped release the industry’s first identity fraud detection score combining machine learning and PII.

About Trulioo

Trulioo is the global leader in identity verification, providing real-time verification of 5 billion consumers and 330 million business entities worldwide, all through a single API integration. Organizations rely on its identity verification platform, GlobalGateway, to meet business and compliance requirements and automate due diligence and fraud prevention workflows.