Tackling crypto exchange KYC compliance challenges

Garient Evans, VP of Identity Solutions, Trulioo explains what the key KYC requirements for crypto exchanges are and advises how to meet them

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

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

Along with the United States, the United Kingdom and the European Union are leading the way globally in implementing cryptocurrency regulations.

Recently, EU institutions announced an agreement on two landmark regulations: the Market in Crypto-Asset Act (MiCA), which regulates most cryptocurrency service providers, and an anti-money laundering package that imposes robust controls on cryptocurrency transfers. Earlier this year, UK Chancellor of the Exchequer Rishi Sunak laid out a plan to turn the UK into a global technology hub for crypto assets. In July, the UK Financial Services and Markets Bill was published and included a provision for the regulation of cryptoassets and stablecoins for the first time.

We see similar movements elsewhere. The creation of the World Economic Forum’s Digital Currency Governance Consortium, a group composed of more than 80 organizations representing a variety of 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 of regulators is crystal clear. They want to protect consumers from scammers and illegal companies. They also want to reduce the use of crypto to facilitate nefarious activities such as financing terrorism, financing 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 that crypto exchanges have a clear understanding of who their customers are underscores the importance of having a suitable Know Your Customer (KYC) program in place. It 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 that their KYC and crypto compliance procedures are secure, robust and sound while safeguarding 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 of international investors. It also means establishing strong security measures that keep out bad actors and protect customers’ personal data.

Finding the right balance between strong security and low-friction onboarding is key to providing the experience customers expect when interacting with crypto exchanges. Complicated procedures and long waiting times for approvals can cause customers to go to another 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 increase consumer confidence that their data will be protected.

In fact, many European countries have already implemented IDV requirements. In the Netherlands, clients must confirm ownership of the crypto wallet and describe their intended use of cryptocurrencies. Switzerland users must prove their ownership of non-custodial 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 reliable IDV partners.

Crypto exchange KYC 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, improved user experiences, fast results and strong security can position crypto exchanges to meet today’s KYC requirements and gain a competitive edge in an ever-evolving market.

About Garient Evans

Garient Evans brings to Trulioo over 20 years of experience and expertise in credit, identity, fraud, document verification and compliance. He has previously held senior roles at Mitek, Socure and ID Analytics, where he was involved in releasing the industry’s first identity fraud identification score that combined 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. Organizations rely on its identity verification platform, GlobalGateway, to help meet business and compliance requirements and automate due diligence and fraud prevention workflows.