Know your customer (KYC) is a customer verification process conducted by a financial institution before providing financial services. This process includes personal identification, document verification, and an assessment of all the risks of a potential client.
“Know your customer” is the obligation of a financial institution to the regulator to maintain reliable information about all its customers. KYC is an international financial policy tool to combat money laundering and terrorist financing. This process also serves as a protective mechanism to reduce potential risks for the fintech company or bank itself, and failure to comply with these rules threatens the company with fines from the regulator and even the loss of its license.
What does KYC mean?
KYC - this means “Know Your Customer”, that is, the creators of the exchange know who has registered on their site. In theory this should be simple enough, but in practice it is much more difficult.
For starters, most financial regulators or authorities require financial institutions to have a KYC system, but they do not specify how exactly this should be done.
Some authorities require banks or exchanges to collect a minimum set of documents and personal information. This data usually includes:
- Name
- Address
- Identification number / passport / license number
- Country of Residence
- Date of Birth
Depending on the institution, confirmation of this data is often required, that is, a selfie with a passport, a utility bill, etc. Institutions themselves decide what specific information the client must provide in order to undergo KYC.
This has led to an incredible variety of KYC procedures even between two seemingly identical platforms.
How effective is it?
In the photo above you can see the effect of facial biorevitalization before and after the procedure. It lasts quite a long time, the specific period depends on the condition of the client’s skin, the severity of the problems, heredity, lifestyle and other factors. On average, one session lasts 6-12 months. To improve the results, you can carry out additional manipulations, their number will depend on the goal:
- Preventive – 1-2 sessions are enough.
- Medicinal – less than 5 is required.
The interval between them is determined by a specialist, usually the interval is about 1 month. How often biorevitalization is done after the main cycle again depends on the recommendations of a specialist. Usually one procedure is prescribed every six months, this allows you to maintain youthful skin for a long period.
How to pass KYC
Each exchange has a section that is called differently (KYC, Verification, and so on), but has the same meaning - personal identification.
Why is it needed? Mostly for depositing and withdrawing Fiat funds, less often just for regular cryptocurrency trading.
Passing KYC is very easy. In this article we will look at the example of 1 large cryptocurrency exchange - STEX.
Please note that our website contains a huge number of reviews of cryptocurrency exchanges: how to use them, register, and most importantly, how to go through the KYC procedure on each exchange!
To complete KYC, go to the verification tab, which is located in the “Data Verification” profile settings section:
Next, the platform gives us a choice of 5 verification options:
- Fractal
- From the exchange itself
- Via SmartID
- From Privat24 bank (only for their clients)
- Verification through the Cryptonomica service
We will consider our own platform verification, so click on “data verification” opposite the STEX logo. Next you need to fill in the following information:
- Familiarization - read the verification conditions, check the boxes and click on the “Save and Continue” button
- Personal data – enter the following in English :
- First Name Last Name
- Date of Birth
- Nationality
- Country of Residence
- Postcode
- Region
- City
- Home address
- Documents – here we enter your first and last name again and upload photos of the documents.
In addition to the photo, you must also provide a selfie with an identity document (photo) and also record a video where you say the text indicated to the left of the video upload form:
- 4.Click on the “Confirm” button and wait for verification approval (from several hours to a couple of days).
That's all! You have passed the KYC procedure and can trade cryptocurrency for Fiat!
The largest sales platform
Let's consider the sales of large projects that are currently trading at a price of 2x or more of the sale price. The most notable ones are Flow, Solana and ICP.
- FLOW — The most developer-friendly blockchain. It launched CryptoKitties and NBA Top Shot. At its peak, FLOW gave almost 250x.
- Solana - Scalable decentralized network for DApps. Currently on hype. The token is in the TOP 7 in terms of capitalization and has currently given a fantastic x645.
- ICP - Internet Computer Concept. Their coins were given out as an airdrop, and their price rose to $700
Sales usually take place once or twice a month, so you can participate in them periodically.
Why is KYC important?
An important element of KYC is to ensure that users do not engage in transactions related to money laundering or terrorist financing.
The anonymity and lack of central control over the cryptocurrency industry has inevitably led to criminals using digital currencies to misdirect funds.
KYC can help in the fight against terrorist financing, as authorities can request the details of certain users on exchanges.
According to several studies, exchanges that do not perform any KYC facilitate significantly more suspicious transactions than those that implement even the most basic forms of identification.
Ransomware attacks are increasingly linked to unregulated exchanges that lack KYC procedures.
GDPR rules
There is no global regulation of the crypto industry. Each country develops its own set of laws and regulations. At the same time, the G-20 Financial Stability Board, the International Monetary Fund, the US Securities and Exchange Commission (SEC) and many other regulators are seeking consensus to bring uniformity in regulatory oversight across the cryptocurrency ecosystem.
One such example is the General Data Protection Regulation (GDPR), which is aimed at unifying user data protection standards across the European Union (EU). The GDPR came into force very recently - on May 25, 2022. Thus, according to the regulation, users and organizations must comply with KYC/AML (know your customer/money laundering) norms designed to ensure the security of customer data.
Currently, the US, UK and many other countries have also made KYC and AML regulations an integral part of their cryptocurrency regulatory frameworks.
However, KYC and AML regulations are also the main obstacle to crypto protection, since they contradict one of the fundamental ideas of the blockchain - anonymity. In other words, cryptocurrency transactions must be anonymous and untraceable. But since regulators are concerned about the problem of cybercrime, it is precisely anonymity that gives them an intolerable migraine. That is why the need to undergo verification on cryptocurrency exchanges is now becoming more and more common.
Necessity or burdensome task (for clients)?
In some cases, KYC is a necessity that regulated cryptocurrency exchanges cannot do without. However, understanding who their customers are and what they use their platform for can help an operator in many ways.
According to CoinMarketCap, transactions between fiat and cryptocurrencies that require some level of KYC tend to have higher trading volumes than those created by traders who have not completed the KYC process.
This statistic is especially important as new crypto traders and investors will use these exchanges when joining the crypto community. Thus, it is safe to assume that by implementing KYC checks, these platforms are gaining the trust of institutional private investors who might otherwise seek alternative markets.
KYC and user friendliness
Case studies prove that KYC does not have to be a lengthy or complex process. Also, this security procedure can become an integral step for the transition of cryptocurrency to mass use. KYC instills trust in buyers and sellers, providing better protection for both in cases of fraudulent activity.
KYC is also important for those who want to participate in online markets. Today there are many places where you can buy anything using Bitcoin, but how do you know if the seller is real or not? KYC procedures and regulations can help you stay safe.
What levels of KYC policies are there?
Due to different and vague regulations around the world, there are many levels of KYC that are used by different platforms.
- No KYC
Platforms that do not use any KYC procedures. They will not ask you for identification, but may impose strict restrictions or other conditions.
- Basic KYC procedure
Basic KYC will allow you to perform minimal transactions on certain exchanges, although you will likely need to provide certain personal information first. This type of KYC typically allows you to use bank cards or PayPal to deposit Fiat into the platform, with the payment provider and platform sharing your information.
- Full KYC procedure
By providing complete documentation and KYC information, you typically gain full access to the cryptocurrency's features and limitations. You will usually be asked to provide a photo ID along with a utility bill or bank statement issued within the previous 3 months.
Is decentralization decreasing due to KYC?
Some may think that KYC goes against Satoshi Nakamoto's decentralization goals, but this is not necessarily the case. Although this practice began in centralized institutions such as banks and insurance agencies, they have now adapted to a decentralized environment.
Having groups of people or AI controlling cryptocurrency blockchains does not suddenly turn it into a centralized system, but simply makes it a controlled decentralized system.
Additionally, due to the decentralized nature of cryptocurrencies, KYC can be conducted to check for money laundering and terrorist financing in a much more transparent manner. Numerous authorities or companies may conduct these inspections without each other's permission.
It is for this reason that some believe that cryptocurrency is the answer to the elimination of the black market, which is facilitated today by cash transactions and unregulated cryptocurrency exchanges.
With more platforms implementing KYC, cryptocurrency decentralization will not be affected, but it will help attract more users to digital currencies encouraged by governments and institutions that are committed to eliminating financial crime.
Who is an AML Officer
It is customary to call this position an AML officer, but it is not entirely correct. From a language point of view, Officer is a responsible employee. But even though the position is not essentially military in nature, the AML officer must uphold the law. Today for Russia this is a rather rare position, especially if such an employee is certified in Europe. The duties of the employee responsible for compliance with anti-money laundering legislation include strict compliance with the company's AML policy. Such an employee must have sufficient authority and be independent of the company’s commercial performance.
