...Information used for KYC such as passports and driver's licenses may be exposed if the exchanges are not well secured.
By itself, the disclosure of information contained in a passport or driver's license is not particularly secret. The problem arises when the disclosed data is linked to your wallet and it becomes known to attackers. Although if the tax authorities know about your cryptocurrency income, then this will also cause you additional problems.
That is the real danger, if your holdings are small then this is not so much of a problem, but if your holdings are big then that could make you a target to hackers or to common thieves, this is why probably the first step needed to secure your coins is to never tell anyone the actual size of your holdings, and if someone ask just tell them that you have a few dollars worth of bitcoin and nothing more, but by going through KYC this information is impossible to hide anymore ,and if the exchange is hacked, something incredibly common, even if the hackers do not get your coins at least they will link your activity in the exchange with your identity and that is extremely dangerous.