KYC regulation has become an increasingly critical issue in the recent years for almost all institutions (so almost all businesses) that deal with money.
What does KYC stand for?
Know Your Customer (KYC) is the first stage of the due diligence process required by Anti Money Laundering (AML) legislation.
When someone opens an account on the website of a crypto exchange or crypto wallet provider, the platform initiates a verification process to identify and verify the identity of the client. This process allows the platform to assess the customer’s risk profile and estimate the their propensity to commit financial crimes.
KYC therefore stands for the process under which the crypto platform• verifies the accuracy of the client’s personal data
• verifies the accuracy of the client’s personal data
• gains a better insight into the activities of the potential client and verifies their legality, and
• determines the likelihood of whether the customer may pose a money laundering risk.
What is the KYC process?
To comply with the legislation, crypto platforms must take the following steps:
Step 1: Collecting the users’ personally identifiable information including full name, place of residence, date of birth and address.
Step 2: Comparing the information with official identification documents, such as a passport, ID card or driving licence, and proof of residence, such as a utility bill or bank statement less than 3 months old.
Step 3: Comparing the identity of the client with official databases containing information on Politically Exposed Persons (PEPs) and sanctioned persons.
These steps will help crypto businesses to determine the risk of money laundering and financial crimes associated with virtual currencies for each individual user. If everything is in line, the client is allowed to perform certain activities on the platform.
Once the business relationship has been established, the following element of the KYC process is the ongoing monitoring of the client’s transactions, which we will discuss in our next blogpost.
Although KYC may seem overwhelming for clients, it also provides security for those who are using the platform. We can be certain that the crypto company that uses due diligence is operating in a regulated environment and overseen by a public authority. This means that public authorities require a report from time to time, and there is a good chance that your investment is in good hands.
What are the benefits of KYC for clients?
Due diligence is not only about submitting documents that may seem unnecessary to the client, but also about providing a variety of benefits and guarantees:
• If a client’s password falls into unauthorised hands, the true owner of the account can only be identified if the client was first identified when the account was opened.
• If the client forgets or loses their password, it is possible to reset the password with the help of the customer service, as long as the client has been identified when opening the account.
• In the unfortunate event of a client’s passing away and not disclosing their password to their family, partner, etc., the inheritor can contact the service provider with the official death certificate and initiate access to the account, if the client has completed the KYC.
• In case the account is suspended due to an unusual or suspicious client activity, an already identified user can reactivate their account more easily.