But have you ever wondered why exactly they do this? Is it just about obeying rules, or is there something more to it?
You answered your own question
Most centralized exchanges are licensed and according to the licensing authorities, they need to comply with AML and anti-fraud policies which require users' identity verification.
So, yes. They enforce kyc to comply with regulations. Another reason is that kyc can also help in protectig ncustomers' accounts and funds.
But do they handle this process themselves, or are they hiring other companies to check your details? And how safe is your information once you hand it over?
It depends. Some exchanges handle document verification themselves and some ohers partner with third-party companies/services.
Many companies use automated tools to verify users’ documents these days and this is why the whole process takes only a few minutes.