Accredited Investor SEC Law & KYC Process Are Hurting New Cryptocurrency Investor Adoption
The Accredited Investor SEC Law & KYC Process Continue to Lock out Potential Cryptocurrency Investors in the U.S
The cryptocurrency industry in the U.S has been consistently challenged given the nature of regulations proposed & implemented by the Securities Exchange commission. In as much as some of the laws are beneficial, they have proven to put most crypto investors at a disadvantaged position. As it stands, the know Your Customer (KYC) practices & accredited investor regulations are the major inhibitors for the U.S crypto investor.
Regulations on ICO & crypto investing based on investor accredits within the U.S has sparked a debate within the Fin Tech sphere. As it stands, both IPOs & ICOs are off-limits for investors in the U.S whom do not meet the minimum requirements to become accredited. Therefore, it leaves the market open only for accredited/high net worth clients.
Accredited Investor Limitations
The SEC stipulates that for one to become an accredited investor they must have earned over $200,000 or $300,000 in the case of a couple within a period of 2 years. Furthermore, he/she should have prospects to acquire such an amount in a year or surpasses the $1 million mark in net assets. This should not be inclusive of their residential property.
Clearly, the approach above edges out a good number of potential cryptocurrency investors in the U.S. On the contrary, if the approach was different, more people would capitalize the market opportunities regardless of their financial status. Simply put, investment knowledge does not go hand in hand with owning a significant portfolio or having a high net worth.
The above sentiment was supported by Laimonas Noreika, Co-founder & CEO Tokenized Securities;
“There are significant amounts of accredited investors who lack expertise in areas, but still have enough money to achieve accreditation. On the opposite side, millions of people do not have enough money for accreditation, but have more than enough knowledge to decide where and why they want to invest. We want to see both of these groups included.”
The Negative Effect
Investors within the U.S have been consistently frustrated by the SEC approach on ICOs & crypto coins. This extends to cryptocurrency projects which raise development funds through ICOs since they can only be launched as Reg-D securities. A couple firms eyeing this sector have to accumulate convincing wealth to participate in the market.
Morgan Creek Digital founder, Anthony Pompliano attributes this approach to the concept of “rich people get richer”. Given the potential in crypto returns, their availability to only accredited investors goes against the American dream.
According to Pompliano, this can be solved using the European “opt-in system”. This network allows users to be responsible of their portfolio risks by adding an acknowledgement feature. Therefore, investors jumping into volatile markets like crypto do not expect high protection against price movements by the regulator. This would probably solve some of the challenges brought about by crypto regulation in the United States.
KYC Practices Risk Investors’ Data
Besides the limitation on accredits, the Anti Monet Laundering (AML) & Know Your Customer processes risk the date of potential investors being compromised. The practices which gather participants’ personal information have no guarantee on the data safety of the same.
Basically, users are exposed because the process involves a lot faith in one party. Regulated coin exchanges might not be as legit as they seem; recently there were allegations against the Robinhood exchange on data policy violation.
Clients are left to choose on whether they will forego an opportunity or risk sharing all their information with no security guarantee. In as much as the firm collecting the data may be legal & registered, loopholes as the information is transferred within networks might expose a client. This leaves the customer alone with the burden of data handling associated risks.
The Ban on Cryptocurrency Involvement
A good number of cryptocurrency exchange service providers have withdrawn or completely ignored the U.S as a result of the strict KYC & SEC laws. It therefore becomes very hard for a U.S based client to interact with some platforms which would have otherwise saved money on commission or other charges.
However, the rules make sense when looking from a security perspective. Cryptocurrencies have for long facilitated illegal activities like terrorism & online scamming hence the need for a strict SEC approach. The U.S investors are also protected from financial risks attributed to crypto that may have an impact on other markets.
To solve these shortcomings, the regulators in the U.S can leverage smart contracts for verification purposes. Participants would only be required to proof their identity by signing a smart contract as is the case in Ethereum. If this can be achieved, personal information exposure would be eliminated leaving both the regulators & investors happy. In conclusion, the accredited investor law would also be a point to start to accommodate a larger crypto market within the U.S.