I don't think exchange sites would seize other people's money but would rather lock the account unless they've proven that you are living or a residence on a country where that exchange is allowed/legal. I definitely do KYC especially on Binance as I do trust the exchange site and that's where I can easily do a P2P trades whenever I need a physical money, to answer your question when it was started it was not that strict and I am one of the users who submitted to their KYC without forcing and I did that for security of my account.