KYC Challenges in the Crypto Ecosystem

Which is more pivotal for a crypto exchange: user experience or meeting regulatory demands?

The fundamental rule in life is that you can’t manage what you don’t know. This holds true for risk management as well. Identifying internal and external factors affecting an organization is the initial step of the risk management cycle. Without understanding these factors, analyzing risks and defining risk responses can lead us into the pitfalls of accepting wrong assurances. For example, the risks affecting a finance sector firm won’t be the same as those affecting a firm in the retail sector. Risk experts refer to this as a ‘risk profile.’ Every organization has its distinct risk profile, but many struggle to define it.

This holds true for cryptocurrency service providers. One of the most significant components in their risk profiles is the customer recognition process. With the SEC, FinCEN, and CFTC classifying crypto asset service providers as financial institutions in 2019, these entities started to be monitored according to KYC (Know Your Customer)and Anti-Money Laundering (AML) rules. In Turkey, the Financial Crimes Investigation Board (MASAK) enforces stringent monitoring and regulation.