Welcome back to BUYEX blog! Tonight, let’s dilute the lockdown with a talk on KYC. Long story short, it is a procedure named “Know Your Client”. Complying with KYC is a must for any crypto exchangers, as well as for any financial organizations at all. Whenever a company proceeds with providing financial services to a new client, it is responsible to collect certain personal data. Although there is no exact list of requirements set by FinCEN on this matter, as a general rule, the following data has to be collected from a client by any financial services provider: full name; date of birth, address, citizenship and copy of the ID. Sometimes, this list also includes a client’s taxpayer identification number, bank statement, proof of address (i.e. utilities bills) etc.


This procedure can be a real headache. Quite an expensive headache. Complying with KYC costs a fortune to any financial institution. Not to mention how hard it is to tick all the boxes of a time-consuming process that only gets more and more complicated with each year. However, it is essential to follow it for the sake of protecting a company from the risks of unconscious participation in illegal activities directed on money laundering and terrorist financing. Besides, an identification & verification of each client is a policy that all financial institutions are obliged to comply with by law. And don’t forget a nasty surprise for those who have screwed the compliance procedure up: the fines are pretty huge.



Same principles apply to AML - Anti Money Laundering policy, which is a set of laws, rules and procedures directed on preventing money laundering and financing the terrorism: all companies dealing with finances must follow its requirements. The EU 5th Directive on Anti Money Laundering (AMLD5) dated July 9th, 2018, obliges all member states to have the centralized register of all national banks’ accounts, as well as the centralized database search system. Which can be a living hell for the companies dealing with cryptocurrencies, which, as a general rule, don’t have such a strong KYC implementation for a number of reasons.



First of all, digital currencies services providing is quite a competitive industry. There are so many of them, and since cryptocurrencies themselves are a relatively new page of financial transactions’ history, the government has not figured out the ways to actually control it just yet. Which means, some companies do comply with KYC, and some don’t; and since many clients get annoyed with a need to go through all circles of bureaucratic hell and want to start using the service as soon as possible, they can simply choose one of the platforms that does not have such a strict identification policy - at they peril.

Furthermore, the costs really get in the way of following all KYC’s requirements. Just as an example, the banks usually spend around $500 millions per annum just for KYC procedure. If you are a crypto exchange startup, that’s not quite an amount you would be happy to spend, isn’t it? So, the expenses problem would limit the ability to approve new clients a lot. However, the main reason for the lack of KYC awareness on the crypto market is the lack of regulation within this industry. It’s hard to figure out what exact requirements are legally binding in relation to digital assets, which are obviously slightly different from regulations of traditional finances. Moreover, it’s even harder to monitor crypto businesses compliance level due to the decentralized nature of digital coins.



Thus, today, the KYC procedure of the crypto industry, as well as its AML regulations, are way too far from being perfect. There are several options of potential regulation guidelines but choosing the exact one and implementing it into the business operation is still a “work in progress” for legislative bodies. What’s truly important to bear in mind when questioning KYC’s relevance within the cryptomarket is that the whole thing is not only about an opportunity to avoid paying taxes (although this is an exciting opportunity - for sure!).

It’s also about the whole society’s safety. It’s the question of the national security system protecting each individual - including you, our precious reader. All these rules are designed for reducing the risks of terrorists getting an easy way to finance a mass murder and the risks of users becoming victims of fraudulent activities and finding themselves in the middle of the black market’s money laundering game. In order to make the financial world take cryptocurrencies seriously, treat crypto businesses with respect and provide digital currencies holders with support and protection, it is essential to acknowledge that KYC procedure is actually needed.