Summary

“Know Your Customer (KYC) checks are requirements for financial services providers to identify and verify their customers. This is as part of its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance efforts to combat financial crime and ensure customer due diligence.

KYC proactively combats criminal activity by collecting and verifying customer information. These inspections increase trust in the industry and help financial services providers manage their risks. KYC has become commonplace among cryptocurrency exchanges. However, some argue that it runs counter to the anonymity and decentralization of cryptocurrencies.

Introduction

KYC is a common regulation that financial services providers must meet need. These inspections mainly combat funding from illegal activities and money laundering. KYC is a key measure in anti-money laundering supervision, especially an important security guarantee for cryptocurrency. Financial institutions and service providers like Binance need to implement more comprehensive KYC procedures to protect customers and their assets.

What is KYC?

If you open an account with a cryptocurrency exchange, you may have to complete KYC checks. KYC requires financial service providers to collect information that verifies the identity of their customers. This can be done, for example, via official identification or bank statements. Like AML regulations, KYC policies help combat money laundering, terrorist financing, fraud and the illegal transfer of funds.

KYC is usually a proactive approach rather than a reactive one. Most financial service providers capture customer details as part of the new user process before conducting financial transactions. In some cases, it is possible to create an account without KYC, but often the functionality is limited. For example, Binance allows users to open accounts but restricts transactions until KYC is completed.

When completing KYC, you may be asked to provide the following information:

• ID card

• Driving license

• Passport

In addition to verifying the customer's identity, it is also important to confirm their location and address. Your ID will provide basic information such as your name and date of birth, but to determine your tax residence, for example, more information is required. You may need to complete more than one KYC verification process. Financial services providers are also typically required to re-verify their customers' identities on a regular basis.

Who oversees KYC compliance?

KYC regulations vary from country to country, but there is international cooperation on the basic information required. In the United States, the Bank Secrecy Act and the Patriot Act of 2001 established much of the AML and KYC processes seen today. The European Union and Asia-Pacific countries have developed their own regulations, but there is much overlap with the United States. The EU Anti-Money Laundering Directive (AMLD) and PSD2 regulations provide the main framework for EU countries. At the global level, the Financial Action Task Force (FATF) coordinates cross-border cooperation on regulatory conditions.

Why is identity authentication required in cryptocurrency transactions?

Due to the anonymity of cryptocurrency, it is often used for money laundering and tax evasion. Improved regulation of cryptocurrencies can improve their reputation and ensure that taxes are paid when they are due. There are three main reasons why the cryptocurrency industry requires KYC checks:

1. Blockchain transactions are irreversible. If you do something wrong, no administrator can help, which means the funds are at risk of being stolen or transferred, and it cannot be retrieved.

2. Anonymity of cryptocurrency. You don't need to submit any personal details to create a crypto wallet.

3. In many countries, regulation regarding taxation and the legality of cryptocurrencies remains uncertain.

Although KYC increases the time required to set up an account, it has clear benefits. Ordinary users may not be aware of this, but KYC has a significant impact on ensuring the safety of funds and fighting crime.

What are the advantages of KYC?

The advantages of KYC are not always obvious. However, it doesn't just fight fraud, it improves the entire financial system:

1. Lenders can more easily assess their risk by establishing information about their customers' identity and financial history. This process leads to more responsible lending and risk management.

2. Combat identity theft and other types of financial fraud.

3. As a proactive measure, it greatly reduces the risk of money laundering.

4. Improve trust, security and accountability of financial service providers. This trust helps to have a positive impact on the entire financial industry and further encourages investment.

KYC and decentralization

Cryptocurrencies have been focused on decentralization and freedom from middlemen from the beginning media. As mentioned before, anyone can create a wallet and hold cryptocurrencies without providing personal details about them. This is exactly what makes cryptocurrencies used by criminals for money laundering.

Governments and regulators often require exchanges to complete KYC checks on their customers. While mandatory KYC is difficult to enforce for crypto wallets, services that convert fiat currencies into cryptocurrencies are more suitable for KYC enforcement. Some investors are speculatively interested in cryptocurrencies, while others more actively appreciate their core value and utility.

Arguments against KYC

KYC has its clear advantages, but for some critics it remains there is controversy. The argument against KYC is more prevalent in the cryptocurrency world due to its history and context. Typically, much of the criticism comes from privacy and cost concerns:

1. Performing KYC checks incurs additional costs, which are often passed on to customers through fees.

2. Some users do not have the documents required for KYC checks, or may not have a fixed address. This makes it difficult for them to access certain financial services.

3. Irresponsible exchanges or service providers may lack data security, or your private data may be stolen.

4. Some people believe that this is contrary to the decentralization of cryptocurrency.

Conclusion

KYC process (identity verification) is an important part of financial services and The industry standard for cryptocurrency exchanges. This is one of the most important features in the fight against money laundering and other criminal activities. KYC checks can be inconvenient, but they provide great security. As part of wider anti-money laundering measures, KYC helps make trading cryptocurrencies on exchanges like Binance safer and more secure.