AML and KYC in Crypto

How Do Crypto Platforms Protect You From Crypto Fraud

Have you ever wondered how crypto criminals are brought to justice if crypto is anonymous? Also, have you ever wondered if the cryptocurrency platform has measures to protect you from fraud? See this link to learn more.

In summary

  • What is AML in Cryptocurrency, how does it work, and why is it important.
  • What does KYC refer to in the crypto world, how does it work, and why is it important.

Over the past decade, cryptocurrencies have redefined money. It is no surprise that they have also redefined money laundering. While there have been hundreds of high-profile cryptocurrency-based crimes, regulators and law enforcement agencies fight back with anti-money laundering (AML) and know your customer (KYC) policies.

What is AML in Cryptocurrency

 Cryptocurrency anti-money laundering (AML) refers to the regulations, laws, and practices designed to stop criminals from converting illegally obtained cryptocurrencies into money.

AML how it works and why is it important

The Financial Action Task Force (FATF), a global organization that sets the standards for anti-money-laundering laws, has cracked down on cryptocurrency by publishing guidance and codifying those recommendations into law. 

These days, most regulatory bodies have codified those recommendations into law. Then it is up to virtual asset service providers (VASPs)—a group that FATF defines to include cryptocurrency exchanges and stablecoin issuers—to stop money laundering by employing compliance officers and continuously monitoring transactions for suspicious activity.

When suspicious activity is observed on the blockchain, virtual asset security providers (VASPs) report their findings to regulators and security agencies. These agencies use blockchain analysis tools like Chainalysis Reactor to investigate the flow of funds and link illicit activity to real-world identifiers.

Importance of AML

Cryptocurrencies are still appealing to criminals due to their ability to send funds anywhere in the world, even though they are transparent and trackable. In 2020 alone, $2.3 billion was laundered through cryptocurrency exchanges. 

Effective AML regulations have two consequences: first, they make laundering schemes riskier and less profitable; second, they create new avenues by which investigators can catch and prosecute criminals. 

What is KYC in Cryptocurrency

KYC stands for know your customer. The obligation of financial institutions to perform identity and background checks on their clients before offering them a product or platform. Once implemented, this helps protect those institutions from being used by people trying to launder money.

How does KYC work, and why is it important

Cryptocurrency regulations are constantly evolving, and the KYC processes that virtual asset service providers (VASPs) must follow have been a topic of much debate. In traditional finance, valid credentials include ID card validation, face verification, and biometric authentication. Additionally, many banks require proof of address, such as a copy of a recent utility bill.

In the cryptocurrency industry, Know Your Customer (KYC) requirements are less standardized. Depending on where an exchange operates and what services it provides, new customers may be required to provide their legal name, government-issued ID, and up-to-date address information.

The KYC program uses several different approaches to ensure you are who you say you are. The first step is to check your information against reliable and independent data sources, like a driver’s license or passport. The second step is to use the information gathered in the first step to determine how risky it would be to open up an account with you.

Importance of KYC

As cryptocurrency gains momentum, companies offering crypto services must develop KYC policies. Identity verification and risk assessment are the best ways to achieve this goal. By adopting new KYC procedures, companies can build trust with users and regulators without sacrificing profit. According to Binance, most people/users go through KYC.

Bottom line

The cryptocurrency boom has reshaped the global financial network, and as a result, AML and KYC policies have become essential for all involved. Chainalysis helps businesses stay compliant and government agencies stop crime: because AML and KYC policies minimize business risk, protect users from illicit activity, and build trust in cryptocurrency.

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