Tackling crypto exchange KYC compliance challenges

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

There’s no denying the size and scale of the crypto economy or the attention it’s drawing from regulators. According to a report from Reuters from May this year, there are 18,142 cryptocurrencies, 460 crypto exchanges, and the market cap of cryptocurrencies regularly tops USD 1 trillion. Data changes daily but, as of mid-August 2022, the 24-hour average trading volume of all cryptocurrencies globally came to USD 66.7 billion.

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

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

Recently, EU institutions announced an agreement on two landmark pieces of regulation: the Market in Crypto-Asset Act (MiCA), regulating most providers of cryptocurrency services, and an anti-money-laundering package imposing robust checks on cryptocurrency transfers. Earlier this year, UK’s Chancellor of the Exchequer Rishi Sunak set out a plan to make the UK a global crypto-asset technology hub. In July, the UK Financial Services and Markets Bill was published and included a provision for the regulation of crypto assets and stablecoins for the first time.

We’re seeing similar movements elsewhere. The creation of the World Economic Forum’s Digital Currency Governance Consortium, a group composed of more than 80 organisations representing numerous sectors and geographies, is also intended, in part, to inform approaches to digital currency regulation.

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

The requirement that crypto exchanges have a clear understanding of who their customers are underscores the importance of having a fit-for-purpose Know Your Customer (KYC) programme in place. That builds trust and privacy, which are two critical elements for crypto exchanges hoping to scale to reach more consumers while complying with regulations. Exchanges must ensure their KYC and crypto compliance procedures are secure, robust, and defendable while guarding the privacy of their clients.

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

Finding the right balance between powerful security and low-friction onboarding is the key to providing the experience customers expect when they interact with crypto exchanges. Complicated procedures and long wait times for approvals can lead to customers leaving for a different crypto exchange.

Streamlined and low-friction digital identity verification (IDV) can be the cornerstone of crypto KYC. IDV can help align exchanges with privacy and security regulations and boost consumer confidence that their data will be protected.

In fact, many European countries have already rolled out IDV requirements. In the Netherlands, clients must verify their crypto wallet ownership and describe their intended use of cryptocurrencies. Switzerland users must prove their ownership of noncustodial wallets with verified documentation. In France, anonymous accounts have been banned.

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

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

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

About Garient Evans

Garient Evans brings 20+ years of experience and expertise in credit, identity, fraud, documentation verification, and compliance to Trulioo. He previously held senior roles with Mitek, Socure as well as ID Analytics where he was involved in releasing the industry’s first identity fraud detection score combining machine learning with PII.

About Trulioo

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