What is KYC ?Know your customer (KYC) refers to due diligence activities that financial institutions and other regulated companies must perform to ascertain relevant information from their clients for the purpose of doing business with them. The term is also used to refer to the bank regulation which governs these activities. Know Your Customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed agents', consultants' or distributors' anti-bribery compliance. Banks, insurers and export credit agencies are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.
Who has to enforce KYC ?Know your customer (KYC) falls under the responsability of each financial institution and/or regulated company.
The regulations require these entities to adopt KYC procedures. It assists them in knowing / understanding the customers and their financial dealings better to monitor their transactions for identification and prevention of suspicious transactions.
KYC RecommendationsKYC controls typically include the following:
- Collection and analysis of basic identity information (referred to in US regulations and practice a "Customer Identification Program" or CIP)
- Name matching against lists of known parties (such as "politically exposed person" or PEP)
- Determination of the customer's risk in terms of propensity to commit money laundering, terrorist finance, or identity theft
- Creation of an expectation of a customer's transactional behavior
- Monitoring of a customer's transactions against their expected behaviour and recorded profile as well as that of the customer's peers
KYC Jurisdiction and LocalityKYC regulations are local, and differ from country to country. Jurisdiction is also, on a coutry to country basis.
To know more about your specific country, visit:
http://kycmap.comKYC and Bitcoin ExchangesStricter KYC policies:
Bitstamp
https://www.bitstamp.net/privacy-policy/Bitfinex
https://www.bitfinex.com/pages/tos or refer inquiries to
compliance@bitfinex.comBTCChina (only since new PBOC guidance, Dec 2013) (link?)
Cavirtex
https://www.cavirtex.com/faqCoinbase
https://coinbase.com/legal/privacyKraken
https://www.kraken.com/legal/verification (their General Counsel, Constance Choi is a well known specialist in the Regulatory and Compliance field)
Cryptonit
https://cryptonit.net/regulationsLoose or non-existant KYC policies:
BTC-e (??)
Crypsty (??)
LocalBitcoin (p2p based, limited KYC?)
What is AML?Standing for "Anti-money Laundering", it is a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately.
Who has to enforce AML?In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989.
The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.
The FATF calls upon all countries to take the necessary steps to bring their national systems for combating money laundering and terrorism financing into compliance with the new FATF Recommendations, and to effectively implement these measures.
Again, as in the case of KYC, financial institutions and/or regulated companies are responsible for the implementation of internal AML policies.
AML Jurisdiction and LocalityAML regulations are also local, and differ from country to country. Some countries choose a top-down approach, inheriting much of their AML policies from the FATF, while others go for a bottom-up approach and then have to reconcile both policies. Extreme countries where such reconciliation is impossible (generally due to Government unwillingness) are excluded from the FATF membership, with the corollary of increased complications to access the international markets and financing.
For a full list of FATF members, visit:
http://en.wikipedia.org/wiki/Financial_Action_Task_Force_on_Money_LaunderingAML and Bitcoin ExchangesCurrently in compliance:
Bitstamp
https://www.bitstamp.net/aml-policy/Bitfinex
https://www.bitfinex.com/pages/tos or refer inquiries to
compliance@bitfinex.comCavirtex
https://www.cavirtex.com/why_virtex#proactively_workingCoinbase
https://coinbase.com/legal/privacyKraken
https://www.kraken.com/legal/aml (their General Counsel, Constance Choi is a well known specialist in the Regulatory and Compliance field)
Cryptonit
https://cryptonit.net/regulationsUnknown status:
BTCChina (unclear since new PBOC guidance, Dec 2013) (are they financial institutions?)
BTC-e
https://btc-e.com/page/1LocalBitcoin (p2p based, limited or no AML?)
WARNING:Assume that restrictions for any Bitcoin to National Currency exchange may become more restrictive at any time in the future. Many exchanges in the past have
restricted currency deposits or withdrawals proactively as BitStamp has, without any explicit order from a government agency to do so at the time. Others like
BTCChina have in response to concerns made even the ability to continue to login to their platform contingent on supplying further identifying information. In the past surprise changes to AML/KYC requirements have lead users of exchanges to have their access to deposited funds substantially delayed while complying with new requirements or even lost access to their deposited funds completely if they could not comply with the new requirements. Changing AML/KYC exchange enacted AML/KYC requirements have affected users of all major exchanges that handle both Bitcoin and National currency. People who continue using such exchanges should prepare for the contingency that their exchange of choice will change their AML/KYC requirements in the future.
As the popularity of cryptocurrencies continues to grow, so too do the demands for greater regulation, and one of the key components of this is the Know Your Customer (KYC) process. KYC is a set of rules designed to prevent money laundering, terrorism financing, and other illegal activities. While it may seem like a necessary step to ensure the integrity of the cryptocurrency ecosystem, the reality is that KYC is bad for crypto and Bitcoin, and it fundamentally undermines the freedom and decentralization that are at the heart of this technology.
Firstly, KYC goes against the very essence of cryptocurrencies, which is to provide an alternative financial system that is decentralized, anonymous, and operates independently of government control. With KYC, individuals are required to provide personal identification documents and other sensitive information, which not only violates their privacy but also opens them up to the risk of identity theft and fraud.
Furthermore, KYC creates a significant barrier to entry for individuals who may not have access to traditional banking services, such as those in developing countries or people without official identification documents. This not only restricts access to cryptocurrencies but also reinforces the existing inequalities and power structures that cryptocurrencies are designed to disrupt.
Additionally, KYC processes are often implemented inconsistently and in a way that disproportionately affects smaller businesses and individuals. This creates a competitive disadvantage for smaller players in the industry and stifles innovation, while larger companies can more easily absorb the costs and resources required for compliance.
Finally, KYC creates a single point of failure in the system. If centralized exchanges are required to implement KYC, this gives hackers and other bad actors a clear target for their attacks. This undermines the fundamental security of the blockchain network and puts the entire system at risk.
In conclusion, KYC is bad for crypto and Bitcoin. While it may seem like a necessary measure to prevent illegal activities, it fundamentally undermines the freedom, decentralization, and equality that cryptocurrencies are designed to provide. Instead of imposing strict KYC regulations, the cryptocurrency industry should focus on developing innovative and decentralized solutions that provide greater security and privacy for all users, regardless of their background or financial status.