As the blockchain industry evolves, KYC compliance is a barrier to its mass adoption in projects
Nearly 20 years after the anti-money laundering law was passed, regulators around the world are working to create global standards for the Know Your Customer (KYC) rule. These standards still apply to the financial and technology sector and cryptocurrencies in particular. The tech sector, which started with idealized anonymous peer-to-peer payments, now takes into account the security of traditional finance, which means complying with the KYC rule. The company kycaid.com is in the business of verifying users, documents and individuals for KYC compliance of cryptocurrency exchanges, financial platforms and others.
While technology has advanced in some respects, the attitude of cryptocurrency exchanges toward KYC has sometimes been dismissive, and in some cases criminally negligent (or even criminal in nature). Attitudes are changing, but the debate about how KYC and cryptocurrency rules interact is only heating up.
What is KYC?
With the digitalization of the international financial system and increased regulation, the compliance industry is on the rise. What used to be a secondary area that sometimes caused headaches for investment bankers and traders is now becoming an important big data hub.
KYC is the process of verifying who you are, where you get your money from and what you do with it. Between 2000 and 2010, most jurisdictions: U.S. and Canada, most European countries, South Africa, Russia, India, Singapore, South Korea, China and Japan (to name a few) passed laws regulating KYC and AML (anti-money laundering laws). As a result, banks and related financial institutions have become required to comply with anti-money laundering laws.
Cryptocurrency exchanges now view fiat ramps as a major component of their product. These changes have led to a reliance on banks and payment systems that require the same level of compliance that they themselves adhere to.
For virtually all payment organizations, KYC rules are created to prevent criminal activity such as fraud, money laundering, terrorism financing, use of stolen funds, bribery, corruption and other suspicious financial transactions. So far, much of the KYC rules have focused on strict regulatory compliance, often in the name of protecting consumers. But ultimately, it's about the risk management process.
Often large companies manage their own KYC rules, an in-house team handles that. Smaller companies, on the other hand, outsource their verification processes. Regardless of who handles KYC, the process usually doesn't change. Clients must send in identification documents: address, bank statements, and sometimes explain the source of their funds.
Keeping confidential documents is just as important as using them. In the pre-cloud era, banks had to duplicate documents to insure against the loss of any document. Files were copied and stored on various unrelated servers.
Thanks to Amazon and other cloud storage providers, institutions and third-party verification providers now encrypt AES-256 KYC principles information and store it securely on cloud servers like Amazon S3. But this approach is by no means standard.