Crypto Firms Must Embrace KYC & AML Requirements to Survive

Cryptocurrency exchanges are facing a difficult situation. They have to comply with KYC/AML requirements in order to access fiat, which is making it difficult for many exchange projects that rely on crypto-to-crypto trading.

The “crypto kyc regulation” is a law that was passed in the United States to prevent money laundering and terrorist financing. This law requires cryptocurrency firms to implement KYC and AML requirements.


Cabital’s Co-Founder and Chief Executive Officer, Raymond Hsu

Companies that engage with digital assets must now comply with new regulations from their national government agencies, as authorities continue to monitor the booming cryptocurrency business. Most major jurisdictions have made Know Your Customer (KYC) and Anti-Money Laundering (AML) rules mandatory, and they must be rigorously followed to safeguard consumers from unscrupulous activity.

More crypto monitoring is needed, according to the FATF.

The Financial Action Task Force (FATF) presented its completed crypto recommendations to the public last week, urging for further regulatory monitoring of cryptocurrency companies. This includes requiring them to report suspicious transactions to their regulator and ensuring that each and every client completes the KYC process. 

The FAFT’s suggestions are just that: advise, or guidance, since they don’t have the power of law behind them. National regulators would be required to adopt the FAFT’s recommendations via their respective legal systems or political frameworks, according to the FAFT’s principles. However, the global AML watchdog has a lot of clout when it comes to creating international norms for states on AML and terrorist financing rules, and given its reputation, it might become a worldwide leader in shaping digital asset legislation in the future. FAFT already has over 36 members, encompassing most of Europe, China, and the United States. 

The crypto sector has expressed fears that the FAFT’s standards would hinder innovation and compromise user privacy. “It would be improper for anything like these non-specific and ambiguous guidelines to replace the present legislation and regulations we have on the books here in the United States,” Peter Van Valkenburgh, research director at crypto advocacy organization Coin Center, said in a blog post last Thursday.

I understand Valkenburgh’s point of view, but I feel we have passed the point of no return. Governments all around the globe are now requiring that centralized cryptocurrency exchanges that serve their population identify themselves in order to verify that no one is engaging in illicit activity. Regulators in the United States are a wonderful example. The United States has taken extraordinary steps to regulate its burgeoning crypto sector in 2021, examining everything from stable coins to crypto loans. 

This is only the start.

I believe that authorities throughout the world will tighten their standards for KYC and AML for bitcoin exchanges. The FATF has also released rules for DeFi, which are not limited to centralized exchanges. 

Decentralized finance (DeFi) is an umbrella name encompassing a variety of initiatives in the decentralized world, including exchanges, lending, borrowing, trading, and staking – all without the need of a central middleman to monitor transactions. 

According to data provider DeBank, the DeFi area will continue to draw the attention of FATF and national authorities as the business continues to quickly develop, with over $100 billion in assets deposited as collateral in different projects.  

Cryptocurrency companies must adopt KYC and AML.

Cryptocurrency firms will have to collaborate with top RegTech companies and develop their internal compliance policies and processes to guarantee that they can satisfy their regulatory obligations as regulators across the world continue to increase their KYC and AML regulations. 

In reality, bitcoin firms will have to develop a compliance policy modeled after that of prominent global financial service providers if they want to survive. 

This would include the following:

  1. Creating and implementing excellent internal rules and processes, or in other words, effective corporate governance practices.
  2. Recruiting and maintaining highly qualified compliance officers to oversee day-to-day operations.
  3. Getting legal counsel from a law company that specializes in bitcoin regulation.
  4. Installing software that identifies high-risk activity patterns, such as OFAC-sanctioned addresses and darknet marketplaces, as well as frauds and unusual transactions 
  5. Using technology to correlate bitcoin transactions to real-world activities and assess a service’s top counterparties and risk exposure.

The only way out is to follow the law.

Those who obey the rules and regulations will be treated better than those who do not. Companies who follow the law will profit in a variety of ways, including being given licenses to operate in new areas, being able to offer user-friendly fiat on-and-off ramp services, and just having the piece of mind that comes with operating in a clear legal framework. I am convinced that rogue crypto enterprises who operate outside of the law will constantly have to stare over their shoulders, wondering when the regulator will show up at their door. 

And once they do, which they will undoubtedly do, it will just be inconvenient. The US Securities and Exchange Commission has began investigating Uniswap Labs, the major creator of Uniswap, the world’s biggest decentralized exchange. Uniswap was approached by US authorities who wanted to know how investors utilize their platform and how it is promoted. Uniswap promptly responded, stating that it is “dedicated to complying with the rules and regulations regulating our sector, as well as giving information to authorities that will help them with any investigation.”

Cryptocurrency companies who use cutting-edge RegTech and have robust internal compliance processes that enable them to do thorough due diligence on their clients will survive and prosper in the rapidly developing market. It is evident that digital asset enterprises who do not undertake appropriate KYC of their consumers will have a tough time and face an uphill struggle with regulators who want to ensure that the sector follows the same standards and norms as the rest of the economy. It is now or never to become compliant. 

The “cryptocurrency aml certification” is a requirement that has been placed on cryptocurrency firms. The requirements are in order to protect the public from fraudulent companies and ensure compliance with KYC & AML regulations.

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