Do KYC and AML Cryptocurrency Compliance Regulations and Rules Hurt Investor Privacy?

The Strip-Down Feeling of Crypto Compliance

The Price Attached to Compliance

When it comes to the service of transmitting money, especially when it comes to those companies that allow for switching between fiat currencies and cryptocurrencies, they're often made to feel obligated to be in compliance with the firm anti-money laundering legislation (AML) which also includes the likes of Know Your Customer policies and the firm reporting of transactions deemed to be suspicious.

For a large number of cryptocurrency users out there, they hate these various acronyms but have to grit their teeth and bear them as a kind of necessary evil in order to conduct these fiats to crypto transactions at the pace that they're used to.

But, when it comes to the users of financial servers such as Wirex and the banking service like Revolut, they are steadily discovering that the probing kinds of questions that they put forward do not always end once sign-up has been completed. For example, when the customer triggers an investigation orienting around the origin of funds and wealth, they will then be compelled to undergo the strenuous investigation of their accounts, along with personal information with regards to their employment history and financial backgrounds, or they would face the possible consequence of having their account suspended.

According to Wirex and its own origin of funds, the document argues this in a very absolute set of terms:

“Wirex Ltd (Wirex) is required by law to comply with strict anti-money laundering regulations (AML) and Know Your Customer (KYC) requirements in a bid to prevent criminals and terrorists from using its financial products/services and move around their money. Wirex is also required to understand the purpose and intended nature of the business relationship; this includes understanding where the customer’s funds and wealth come from.”

After a large volume of customers within the Wirex community had issued complaints about receiving this document, news sources spoke to the community in order to clarify the nature of its existing Anti Money Launder and Know Your Customer policies.

“Sorry, Our Hands are Tied” – Wirex's Reply

Operating as the Chief Compliance Officer for Wirex, Michael Moore was very forthcoming about the kind of relationship that the company has towards these anti-money laundering and KYC policies. Having gained a reputation for its range of Visa cards being proven as a smash hit for cryptocurrency enthusiasts all across Europe.

The company, according to Moore in an explanation, is a holder of an e-money license. He goes on to explain the fact that this is significantly different from a banking license. Having an E-money license, for example, mandates a far less invasive range of information from the user. This is especially demonstrable when compared to a user attempting to open a bank account, but this does not simply pertain to follow-up questions later on.

Moore went on to explain that Wirex, as an entity that is regulated by the UK, it is under the legal obligation to submit the source of its wealth questionnaire to customers, but only when individual triggers are met. While Moore was not able to effectively disclose the precise threshold as to when this may in fact occur. He did, however, go on to explain that there “could be a variety of different scenarios. It could be one of the transactions … it could be based on turnover, and it could be just an ongoing review of a specific customer based on the length of time that they’ve been with us.”

Moore did go on to confirm the fact that, much like a large number of cryptocurrency exchange-based services, Wirex makes use of a kind of blockchain based monitoring software that can be used in order to flag up when a cryptocurrency has been possibly used for an illegal transaction or activity, such as the purchase of illegal narcotics within the Dark Web. He did go on to concede, however, that these same tools can not simply prove that crypto has been demonstrably used in order to purchase a kind of illegal item. Only that they may have been used from within a Dark Web-based market. As a result of this, many of these same transactions that have been flagged by the same software would need to be addressed and assessed by Wirex on a purely case by case basis.

What you Need – Proof of Funds or Get Out.

While the average user on Wirex may not essentially be engaged with any kind of activity within the Dark Web, there is always the possibility that they will have . some kind of concern with adhering to broader scrutiny through regular crypto to fiat exchanges. “We’re trying to find the right balance with regards to what information we have to take [from the customer],” said Michael Moore, “and obviously, the information is based upon regulatory requirements.” Moore went on to note that Wirex is offering the kind of service that is  “relatively unique in the marketplace at the moment,” so in order to be able to effectively maintain their businesses, the company is compounded to satisfy requirements mentioned from a regulatory basis.

When asked whether there was a good chance that most Wirex users would be asked to complete a source of funds questionnaire at some stage, Moore conceded that was likely. He did point out, however, that any such check would not be triggered at random, but rather in response to a specific event. A customer would typically be notified once they were within a few percentage points of hitting a certain limit, which would give them the opportunity to close their account, should they balk at completing a compliance request.

When it comes to the origin of funds questionnaire that is placed in front of consumers by Wirex, these can often refer to a kind of payslip, letter from an employer that can help ascertain their current salary, even audited. accounts and a list of funds that were received as a form of ‘gift'. When pushed to ask whether customers who earn a salary through a crypto medium would be able to submit a transaction via blockchain as a proof of these same earnings, Moore went on to elaborate that Wirex is fully aware of. the sorts of needs of the crypto space. And that there are clearly documented means of processing customers and controls exists that would take into consideration, the circumstances of the individual.

On Similar Lines – Revolut and Others

Wirex policy, while stringent, is somewhat different, especially when we compare it to other kinds of Crypto to FIat services out there, such as Revolut. This firm, for . example, is another kind of popularly used Visa card which, unlike Wirex, it does not permit users to deposit crypto in any kind of volume. As a result, they can only store, spend and convert cryptocurrency from within the app.

According to Revolut and its Head of Compliance Technology, Eric Wu, the company follows an internal policy of model-driven compliance. “Crypto is of a higher money laundering risk than other flows,” he asserted, adding:

“Revolut must have what’s called a “risk-based approach” to anti-money laundering and terrorist financing. This means that it’s probably not a good idea to equate the risk inherent to £10 spent at Sainsbury to £10 spent on crypto. In this case, we create a per-transaction risk score. These build up over time for different customers depending on how they transact with us. That means that every user has their own unique transaction threshold.”

Very much in to the comments made by Michael Moore earlier on, Wu went on to assert the fact that “the requesting of the source of funds and source of wealth is a standard across the industry.” But much like on a number of other platforms, cryptocurrency investors and users genuinely disliked these KYC and AML regulatory policies. Especially when there was an implicit form of the burden of proof being used against them, especially when they were called upon to prove that their funds were clean.

If they wanted to continue taking advantage of the services that they had access to, they were left with scant few choices. It is Visa providers like Wirex and Revolut understand that these kinds of conditions may mean that investigation becomes a matter of when instead of if for many users. And there's only so much patience that users have towards these regulations.

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