What Lack of Transparent KYC Policies mean for Crypto Exchanges


Cryptocurrency has been one of the hottest topics of 2018 and still comes under the most trending topics in 2019 as well. Where 2019 marks the year of the regulations which will tighten around cryptocurrencies and places where they can be traded, crypto exchanges to be precise. Unknown to many, crypto related institutions are still hardly compliant towards transparent procedures.  More commonly known as AML or ‘Know Your Customer’ procedures.  Where only a handful or limited exchanges actually possess the requisite, human resources, policies and procedures in place to be deemed compliant.      

Growth of Crypto Exchanges and the Need for Transparent PracticesThe rise of crypto technology and the growth of businesses that utilized blockchain at its core led to the worldwide adoption of the phenomenon. Since the trend of using cryptocurrencies rose for transacting, in lieu of regular FIAT currency. A need was felt for a medium where these currencies could be traded and purchased. Thus the concept of ‘Crypto Exchange Platforms’ came to existence.

As these purchases are made in a non-face-face to setting due to the digital nature of crypto exchanges. It was highly important to know the identities of the individual trading on the platforms. Thus the need for KYC compliance was imperative to establish a credible platform/ environment.

How Non-Compliance Affects a Crypto Exchange Business
Everybody is here to make money, and we all know a crypto exchange is a for-profit medium to transact different cryptocurrencies. However, with the inception of any business comes a certain sense of responsibility that each exchange, for example, has to maintain to ensure their respective integrity, through which they entice trust from prospective customers and existing users.

The concept of crypto directly challenges the traditional financial model in payment processing, which is severely disliked by these financial institutions. Operating a crypto exchange without necessary KYC compliance makes way for anonymous trading, which leads to the exposure of immense money laundering risk to a platform. This risk of money laundering can harm the position of a platform, whether that is itself or of its users. Barring additional customers to onboard, due to their reluctance in becoming a part of an ML scheme unknowingly. Also, when an institution becomes notorious for ML activities, it invites the supervision of financial and respective regulatory authorities.

Once the regulatory pressure clouts on an exchange, there is no turning back from that point onwards. Either the exchange gives in or complies to anti-money laundering and counterterrorist financing procedures for transparent practices. Or face fines and severe financial penalties for non-compliance towards necessary implemented KYC procedures. Financial damages in these forms hamper the reputation of a crypto-exchange platform, which in turn affects the trust of existing customers and the new ones wanting to become a part of the platform.

To ensure trouble-free operations, crypto exchanges should pursue KYC compliance as a necessary business practice to establish transparent onboarding and registration processes. These exchanges should develop in house departments or seek external providers for developing real-time account monitoring and Identity management procedures, to ensure acceptance as they become regulated entities.

For Further information about Crypto Exchanges check Is It Still Advisable To Invest In Cryptocurrency?


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