Know Your Customer (KYC) can also refer to Know Your Client. Financial institutions are protected by Know Your Customer (KYC) regulations from fraud, corruption, money laundering, and financing of terrorism. Financial services workers must follow Know Your Customer regulations and try to confirm a customer’s identity, appropriateness, and risk tolerance. The practices fall within the more comprehensive anti-money laundering policy of a bank.
How does the KYC process work?
You probably had to go through a know-your-customer (KYC) check to confirm your identity if you’ve ever used a cryptocurrency exchange or purchased an NFT.
- KYC strives to comprehend the nature of customers’ actions, verify the legitimacy of their source of funds, and evaluate the risks of money laundering involved.
- KYC requirements can range from requiring only a name and email address to demanding an address and photo ID.
- KYC policy proponents underline the necessity to safeguard customers from identity theft and prevent money laundering and fraud.
Steps involved in crypto KYC process work?
To comply with KYC measures, cryptocurrency exchanges must take the following steps:
Step 1: Gather personally identifiable information (PII) about their clients, such as their full name, location, date of birth, and address.
Step 2: Contrast this data with the person’s legitimate government-issued identification, such as a passport or state-issued driver’s license, and residency documentation, like a utility bill.
Step 3: Check the customer’s identity against government databases containing data on sanctioned and politically exposed people (PEP).
KYC Requirements
Despite being few and far between due to strict anti-money laundering regulations, several exchanges still do not demand KYC. Nonetheless, crypto users who value their privacy continue to seek out non-KYC centralised exchanges despite the risks.
Because they are smaller and serve a smaller customer base, non-KYC exchanges frequently have less liquidity than KYC exchanges. This can make it challenging to find buyers or sellers when you wish to trade, which leads to higher fees. You must follow these requirements carefully to avoid wrong authentications and be quick, easy, and secure. Most cryptocurrency firms gather personal data like:
- Full Name
- Birthdate and Address
- State ID number
- Phone Number
- Face ID
There are distinct standards for each nation. Some require the presentation of identification cards. However, customers can frequently open an account quickly by completing an online form with their identity. For instance, Binance requires Nigerians to upload their national identification number (NIN). There is no universally agreed-upon definition of KYC requirements among nations or institutions, which results in divergent verification standards among exchanges.
Conclusion
It cannot be easy to choose which crypto trading platform to utilise with so many companies on the market. However, exchanges with strict KYC requirements show they are aware of and take compliance obligations seriously.
These procedures aid financial organisations in assessing the risk of financial crime and money laundering associated with each client. The customer can carry out specific actions on the cryptocurrency exchange if everything is in order.
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Disclaimer: “Non of Oaks articles are financial advice.” The article is strictly for educational purposes only. Oak has no relationship to these projects. The information provided here is no advice, investment, or trading recommendation. We do not take responsibility for any of your decisions. Please make sure to seek professional advice before taking financial risks.
