During the 2017 bull market, most crypto services lacked the right measures to take notice of their customers and fight money laundering. Even in 2020, 56% of the 800 cryptocurrency exchanges and over-the-counter trading desks analyzed followed weak KYC practices, according to a CipherTrace report. However, the current rally in digital assets has turned the crypto market on its head.
As a result, KYC and AML have become top priorities for cryptocurrency providers, and many industry players are rushing to take appropriate action to get to know their customers better. And not only the providers are increasingly demanding KYC, but also their customers.
This trend started in January 2021 when users became more involved with these procedures and became more willing to pass them. Before the current bull market, only 20% of our customers who started the registration process have been fully verified. Now that rate has changed to 33%, which means a 65% increase in willingness to pass KYC.
It has now become clear that the attitudes of both crypto companies and users towards KYC in crypto have changed dramatically in the past few months.
The double-edged sword-crypto exchange is only now running
While adherence to KYC measures is the standard in the traditional financial world, it is a rather controversial topic in the crypto community. On the one hand, many users refuse to disclose their data, arguing that it is against the basic principles of crypto, and they don’t want companies and regulators to tell them what to do. On the other hand, KYC helps crypto services protect their users.
For example, if someone is unable to log into their account for some reason, the provider can easily restore access for the user if it has been properly verified. This would not be possible on exchanges where no customer data is collected.
Even so, it took some time for the cryptocurrency exchange to take KYC action. As companies take different risks and each vendor maintains a different level of trust and security on their platform, such measures are more important to some than others.
Whether a service provider chooses to implement KYC measures based on regulatory compliance or business preferences, it is not uncommon for users to encounter problems attempting to follow such procedures. For example, it can become painful for a user to wait more than a week (or even a few days) for the customer support team of a crypto exchange to review the submitted documents.
However, with proper management, control and implementation, such problems can be avoided while building trust between the company and its customers. This conveys the message that the company takes its customers and their safety seriously, and is investing its time and resources to keep them and their funds safe.
The need for KYC
There are several factors behind the increased interest in implementing appropriate KYC measures at crypto companies. One of the first reasons has to do with the current bull market for digital assets.
Rapidly growing cryptocurrency prices usually mean an exponential influx of new users into exchanges. Unable to handle this sudden influx, some market participants decided to tighten their KYC procedures to limit the number of customers on their platforms so that only those who are ready to verify their identities can register an account.
In addition to investors, traders and service providers, bull markets also offer a good opportunity for hackers and fraudsters who are increasingly targeting the crypto industry. This is why the exchanges turn to KYC and AML to keep their customers safe while limiting fraudulent transactions on their platforms.
At the same time, regulators have focused on digital assets and researched and drafted laws to manage a strong, high-growth industry. As regulation takes place in this sector, KYC becomes one of the most important pillars of compliance in the financial services industry. Because of this, it will be the focus when regulators implement a framework around crypto.
Crypto users shouldn’t worry about KYC measures
In addition to businesses, end users are also beginning to understand that taking appropriate KYC measures will reduce their risks, increase trust in the platform, and effectively protect them while using the service. With the ever-growing interest in cryptocurrencies, exchanges are becoming increasingly responsible, and implementing KYC along with other required controls like fraud monitoring will help them achieve this.
Above all, the rise of the introduction of KYC measures should not be feared by the players in the industry. This is a sign of a mature market and the gradual adoption of digital assets among traditional financial firms.
In the end, the early adopter companies who use their resources to successfully combine customer success with effective security measures will succeed and become key players in the industry.
The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Konstantin Anissimov is managing director of the international cryptocurrency exchange CEX.IO. He has an MBA from the University of Cambridge. As a member of the CEX.IO board of directors, Konstantin is responsible for corporate governance. He also has extensive experience working in various markets around the world including the UK, European Union countries, China, Southeast Asia and South Africa. He has a strong technical background in web development and the Ethereum blockchain.