What is KYC?
The procedure is the collection and verification of personal data of users by organizations offering financial services. Clients must provide identity documents: a civil or foreign passport, driver's license, ID card. When conducting KYC on the cryptocurrency exchange, the administration may require utility bills to confirm the residential address. The procedure itself consists of 3 parts:
User identification. Collection and primary control of customer information. Comparison of account registration data and submitted documents.
Comprehensive verification. After the initial risk assessment, the financial company may decide on an additional audit. The operator sends requests to the competent authorities to find out whether a potential user was involved in illegal activities.
Transaction control. Monitoring of large transfers and transfer of information to terrorist financing tracking organizations. Depending on the results of the verification, the operation of the account may be stopped.
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Why do I need a KYC procedure?
Verification allows financial organizations to identify customers, understand where they get money from and what they do with them next. KYC rules are needed to combat fraud, terrorist financing, drug trafficking and other crimes.
Regulations oblige companies to carry out the identity verification procedure and store all information. The data is a bank secret and is inaccessible to outsiders. However, by a court decision, they may be required by law enforcement agencies.
Differences from AML.
Anti-Money Laundering (Anti—Money Laundering) is a whole list of recommendations for the prevention of illegal transactions. Identification is one of the components of AML, which complements the general verification of transaction risk. In the process of identity verification, confidential data is collected, and AML already analyzes the information and compares it with addresses in the blockchain. The effectiveness of countering money laundering directly depends on KYC, but it also includes other components:
CDD — collecting data about the identity and address of the user for risk assessment.
EDD is an additional verification process. It is intended for clients from the risk group. It is assumed that users of this category are prone to money laundering and terrorist financing.
Policy levels.
Cryptocurrency exchanges offer their clients different verification conditions. This is due to the type of trading platform and the jurisdiction in which it is located.