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AML & KYC

Money laundering is a huge problem around the world. Unfortunately, while crypto money makes international transactions cheaper and faster, it also makes the crypto industry ripe for criminal activity such as money laundering and terrorist financing. To stay ahead of the game, regulators are passing through anti-money laundering (AML) laws. This helps prevent cryptocurrency and custody services frauds. Strong anti-money laundering programs include foolproof KYC processes to identify and verify users.    

This is a necessary step to detect suspicious activity in the crypto sector.    

AML and KYC in crypto exchanges    

With the changing structure of the financial industry, cryptocurrency is redefining the way transactions take place. At the same time, virtual currency has established itself and offers new solutions for the international exchange of currencies.  A central problem is that criminals launder their money through anonymous cryptocurrency exchanges. 

Regulations aimed at stopping the global wave of money laundering are tightened. The Fifth Anti-Money Laundering Directive (AMLD5) in Europe and the FinCEN Final Rule in the United States specify that virtual currencies and the exchanges on which they are traded are subject to anti-money laundering legislation. This means that a strong AML program, which helps to identify suspicious activity and protect agains such, must be in place to protect against financial crime and money laundering. 

So first of all: KYC stands for "Know Your Customer" and is the first step in customer due diligence in anti-money laundering processes. 

When a financial institution welcomes a new customer, KYC procedures are put in place to determine and verify that the customer is who they claim to be.  This allows financial institutions to assign a risk score to that customer based on their propensity for financial crime.  Now that crypto wallets look more and more like financial institutions, KYC needs to be included in crypto money laundering programs for these institutions.

The process involves collecting a customer's Personally Identifiable Information (PII): full name, date of birth and address. They are checked against official government issued documents, such as passport or driver's license, and their proof of address, such as a utility bill.  A client must then be vetted against official databases that list Politically Exposed Persons (PEPs) and all those who have been sanctioned. 

This allows financial institutions to better understand each client's exposure to money laundering and virtual currency financial crime.    

For the exchange of cryptocurrencies, anti-money laundering programs are essential, both to protect against financial crime and to comply with more stringent regulations.

This means the implementation of an effective anti-money laundering program which includes a Client Acceptance Policy (CAP), Client Identification Program (CIP), ongoing monitoring of transactions and risk management procedures. PAC refers to the process of identifying new customers using official documents.    

CIP is the process of verifying a client against this documentation and official databases. Ongoing monitoring means that crypto exchanges must have systems in place to identify suspicious transactions and ensure that customer data is kept up to date    

With virtual currencies becoming more common, legislation has started updating its standards to include cryptocurrency units such as currency exchanges and wallets.  In the EU, AMLD5 covers the processes that institutions must follow to prevent money laundering in crypto currency. 

The latest update covers cryptocurrency exchange and custodial services, such as virtual wallets. This policy states that exchanges and portfolios must register with their regional regulator, such as the Financial Conduct Authority (FCA) in the UK. Wallets and handbags should demonstrate that they have appropriate KYC and AML compliance programs.    

We act with integrity in order to protect and satisfy our customers, investors and shareholders and to stay compliant with the worldwide regulatory and laws.