New Coinfirm Report Highlights The Lowlights Of KYC Policies And Crypto Exchanges

KYC Policies And Crypto Exchanges

KYC, also known as Know Your Customer, is a type of policy issued by the Department of Treasury and enforced by the Financial Crimes Enforcement Network that cryptocurrency exchanges are required to abide by. The purpose of such policies is to reduce money laundering and the funding of terrorism. With such due diligence procedures, exchanges can mitigate the occurrence of illicit transactions and they also are likely to know their customer's identities’ better.

Unfortunately, just because there is a requirement does not mean that exchanges are compliant like they should be. In a recent study of 216 exchanges, a regulatory technology firm called Coinfirm determined that 69 percent of businesses do not have “complete and transparent” KYC procedures. Worse, about 26 percent of exchanges exhibited a “high” levle of anti-money laundering procedures. These procedures include compliance staff that works in house and transaction monitoring. One such platform that Coinfirm identified as having a “high” regulatory risk due to exposure to anonymous activity was Binance. The reason for this though may be attributed to the platform’s high level of transactions involving deposits and withdrawals at the value of below two bitcoin. As of February 2019, such transactions did not require KYC reporting.

Patel Kuskowski, Coinfirm’s CEO, identified the legal structure at cryptocurrency firms as problematic. Though he did not name the firms, he did state

“It’s perceived as a UK entity, but it’s not really a UK entity. In a lot of these situations, you would have the entity that is transmitting money, especially fiat, that was actually an entity between the contracting party and the sender.”

Interestingly enough, Coinfirm was not the only company that found that many crypto firms are non-compliant with KYC policies. Another firm, Bitwise Asset Management, indicated that 95 percent of trading volume concerning bitcoin was artificial and involved bots or misrepresented statistics by exchanges that were not regulated.

The team at Coinfirm also determined that some cryptocurrency exchanges did not identify official policies on their website. The platform, Binance, allegedly allows users from restricted jurisdictions to use it through a virtual private network that hides their location.

In any case, Binance also seems to be working to improve compliance. It recently announced a partnership with IdentityMind to enhance data protection and compliance concerning its global operations. The platform’s Chief Compliance Officer Samuel Lim stated,

“Where the industry currently stands, it is an ambitious, yet ongoing effort, to implement a unique KYC requirement to service all of our users and businesses. However, in every single jurisdiction that it operates in, Binance adheres to all local rules and regulations and has built trust among the public through its developments, services, and values since its inception. For all of our regulated/licensed businesses, the standard followed is the model which is approved by the regulating body, including Jersey, Uganda, Malta, and Singapore.”

On the other hand, Kuskowshi also takes the position that it may be important to recognize that even though exchanges may allow such maneuvers, they may be permitted because various legal entiies handle transactions, deposits, and the like. He added,

“Financial institutions are looking for legitimate partners. We’ve seen a trend of more exchanges implementing these procedures in order to partner with these entities.”

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