Regulatory authorities around the world are working to create global standards — KYC rules — abbreviated from "know your customer". These standards apply to the financial and technological sectors, and now to cryptocurrencies. The technology sector, which started with anonymous peer-to-peer payments, now takes into account the security of traditional finance, which means compliance with KYC rules. It is a control standard that helps to identify the identity of the client. The essence of it is that the users of the service, during registration or after it, must provide documents identifying their identity (usually a passport, driver's license, photo, or selfie).
In addition to verifying the identity of the client, it is also necessary to confirm his location and address. The identity documents will contain basic information (name, date of birth), but, for example, other documents will be required to establish your tax residence. Most likely, you will need to go through several stages of KYC.
Background of the Issue
In the period from 2000 to 2010 in most jurisdictions: in the USA and Canada, in most European countries, South Africa, Russia, India, Singapore, South Korea, China, and Japan (and these are just some of the states) — legislation regulating the rules of KYC and AML (“anti-money laundry”) was passed. As a result, banks and related financial institutions have become obligated to comply with the requirements of anti-money laundering legislation.
In the crypto community, KYC verification was accepted with a degree of skepticism, since users were afraid to disclose their data, which could fall into the hands of fraudsters. Moreover, according to many crypto users, the KYC process contradicted the very idea of anonymity in the use of cryptocurrencies. However, with the growing popularity, the development of infrastructure, and the adoption of the concept of cryptocurrency payments in many countries of the world, the mood among most users has changed.
However, not all exchanges are in a hurry to implement these rules. Some exchanges may operate on the darknet or simply not request personal information if they are located in countries where there are no laws on the KYC procedure.
What levels of KYC policy exist?
Due to the different and vague rules around the world, there are many levels of KYC that are used by different platforms.
Platforms that do not use any KYC procedures. They will not ask you for identification documents, but they may impose strict restrictions or other conditions.
Basic KYC procedure
Basic KYC will allow you to perform minimal transactions on certain exchanges, although you will probably need to provide certain personal information first. This type of KYC usually allows you to use bank cards or PayPal to enter Fiat into the platform, with the payment provider and the platform sharing your information.
Full KYC procedure
By providing complete KYC documentation and information, you usually get full access to the functions and limitations of the cryptocurrency. You are usually asked to provide a photo ID along with a utility bill or a bank statement issued during the previous 3 months.
Why is the KYC Procedure Needed in Cryptocurrency?
Due to the anonymous nature of the cryptocurrency, it has often been used for money laundering and other illegal activities. Better regulation of the cryptocurrency industry has a positive effect on its reputation and ensures that all taxes will be paid, contributing to its spread in the world.
Supporters of KYC verification believe that this practice helps not only to resist fraud but also to improve the financial system as a whole:
- Lenders can more easily assess their risks by knowing the identity and financial history of the client. KYC promotes more responsible lending and risk management.
- KYC is aimed at combating identity theft and other types of financial fraud.
- KYC acts as a preventive measure to combat money laundering.
- KYC increases customer confidence in financial service providers and helps to monitor the security and accountability of these services.
- The reputation of services has a direct impact on the financial industry as a whole and can stimulate investment.
Arguments Against KYC
The KYC procedure has a number of obvious advantages but still causes some controversy. Many people are opposed to KYC due to the traditionally anonymous nature of cryptocurrency.
As a rule, most of the criticism is based on problems with confidentiality and commissions:
- There are additional costs associated with performing KYC checks, which are often transferred to the client in the form of a commission.
- Some people do not have the necessary documents or a fixed address for KYC verification. All this makes it difficult for them to access certain financial services.
- Irresponsible providers may have weak data protection, and hacking can lead to the theft of not only funds but also your personal information.
- There is an opinion that this practice contradicts the idea of decentralization in crypto.
SwapSpace doesn’t have a mandatory pre-KYC procedure itself. That means you can exchange your coins without the need to register and provide your personal data. However, in case our partners’ risk management systems detect a red flag, they can require a selective KYC check.
In the “Exchange Reviews” section, you can check the KYC level of each of our partners. KYC Level represents the frequency of KYC checks initiated by a partner exchange.