68% of Cryptocurrency Exchanges Are Not Fully KYC Compliant
A recent study held amongst 25 different cryptocurrency exchanges across Europe and the U.S. revealed that only 32% perform full identity checks on their users. This might prompt non-compliant companies to fundamentally change their protocols as soon as new anti-money laundering EU regulations come into effect in 2019.
A study conducted by the analytics house P.A.ID Strategies revealed that more than two-thirds of European and U.S. based cryptocurrency exchange fail to comply with the requirements of the so-called “Know Your Customer” (KYC) procedure. The research focused on 25 exchanges under both jurisdictions and included the major companies in the respective areas.
Cryptocurrency Exchanges Fail to Comply with KYC Requirements
Out of the 25 cryptocurrency exchanges, picked based on the overall volume of transactions, showed that 68% of them allow users to trade both crypto and fiat currencies without having to provide any official identification or to go through a thorough KYC check. In fact, they could start trading by giving up only their telephone number and email address.
Both of the above are easily attainable without having to provide your ID. This means that users who use the exchanges, which fail to abide by the KYC requirements, can easily trade cryptocurrency for fiat, and vice versa, with little to no questions asked.
John Devlin, chief analyst at P.A.ID, commented on the matter:
Cryptocurrency wallets and exchanges want to enjoy the same trust as the wider traditional financial services, but for this to happen they need to rise above the sometimes-dubious reputation of cryptocurrencies’ past and be seen as ‘model citizens’ of the economy.
Things are About to Change
This lenient approach to ID verification, however, might be set to change sooner rather than later. Back in December 2017, the European Parliament’s Committee on Economic and Monetary Affairs agreed to require cryptocurrency exchanges as well as wallet providers to identify their users.
The agreement is part of the fifth anti-money laundering directive of the EU, referred to as AMLD5. It’s set to come into effect in June 2019, exactly 18 months after the Committee’s agreement.
Needless to say, if a cryptocurrency exchange is found to be facilitating activities such as money laundering, especially after failing to meet the demands of the regulations which are set to take place, this is likely to cause substantial, if not irreparable damage to the brand.
It May be For Good
If cryptocurrency exchanges, in general, want to enjoy the same trust on behalf of users as traditional and currently existing services, they ought to be held by the same standards. Yet, up until this moment, most of them are failing to comply.
The upcoming legislation might be able to change that. Kalle Marsal, COO at Mitek, a company selling identity verification technology, which commissioned the study held by P.A.ID., points out that:
Wallets and exchanges want to change perceptions of lawlessness and it’s a relatively straightforward fix. Identity verification processes can be—if implemented correctly—simple for the customer and no barrier to signing up. […] By incorporating systems that are just as future-looking as cryptocurrency itself, exchanges and wallets can be both competitive and compliant with regulatory demands.
Do you think KYC is a necessary requirement in general and should cryptocurrency exchanges abide by it more thoroughly? Don’t hesitate to let us know in the comments below!
Images courtesy of Pixabay; Shutterstock