Cryptocurrencies have become one of financial sector issues most talked about. But it doesn’t come without its offenders and illicit activities, despite their advantages and groundbreaking inventions. Governments from all over the world have been drawing up legislation for this market sector since early 2017. Most of those activities revolved around enforcing KYC and AML regulations.
What are KYC and AML?
KYC is the abbreviation for “Know Your Customer.” The process involves collecting relevant information about the identity of a service’s clients. The website offering the service would allow all customers to request appropriate identification documents, such as photo IDs, bank accounts, credit card information, residential address, bills, invoices, etc.
KYC is primarily used to ensure that a certain service is accessed only by qualified people. This is done to prevent the use of the facility by minors, undocumented immigrants or individuals with criminal histories.
It also provides an evidence database which law enforcement can use for any future criminal activity in their investigations. KYC is an integral part of many online platforms, such as those used for gambling and forex trading.
AML comes from “Anti Money Laundering.” AML is made up of a series of laws that are enforced to prevent income from being created by illegal and fraudulent transactions. The establishment of a regulatory framework that hinders criminals from turning money resulting from illegal operations into legitimate assets is imperative for government and financial institutions.
The Financial Mainstream Ecosystem has several checks and balances designed to prevent money laundering.
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KYC and AML make up a large part of the efforts employed in the cryptocurrency industry regulatory process. With billions of dollars flowing into the market from different sources, government and financial institutions feel compelled to closely track the space
As ICOs have increased both in popularity and number, they have also received more attention from regulators. Now for all coin offerings a certain degree of KYC and AML is required.
Nevertheless, KYC and AML regulations contradict the core philosophies on which blockchain— the underlying cryptocurrency technology — was based; the ideology is anonymous. By this theory, cryptocurrency transactions should be anonymous and untraceable, resulting in a lot of problems for regulators as there are fears that criminals may benefit from their network.
ML / TF is a term commonly used by critics of cryptocurrencies when claims are made against the program. ML / TF comes from “Money Laundering / Terrorist Funding.” Since money transfers are not traceable, this could potentially be devastating for any country’s financial and national security. Because of this, it has become popular for governments to start cracking down on the cryptocurrency market in certain countries. While for each country this strategy is different, the basic idea is the same: to strip crypto transactions of their anonymity.