What is a KYC process?
KYC stands for Know Your Customer. It is a process through which the buyer’s identity and residency is verified and can be done as simply as providing a copy of your passport, ID or driver’s license. This is the same process that is implemented by banks when someone wants to open an account.
Why is it so important?
The KYC process is an essential part of an ICO. Indeed, KYC processes are legally required in many industries in order to counter money laundering and the financing of terrorism. This requirement has spread worldwide and has become an implicit requirement for legitimacy purposes.
Cryptocurrencies do not have a worldwide uniformed legal framework (or most often than not, they do not have a legal framework at all). That creates uncertainty as to what the requirements will be once regulated. Therefore, companies dealing with cryptocurrencies should get inspiration from established actors when it comes to avoiding criminal implications and implement KYC processes in their ICOs. As actors in the crypto space, it is our duty to make sure that this is a crime-free environment.
Some people counter this argument by reminding that what made cryptocurrencies so attractive initially was the anonymity of the investor and the absence of background checks as to where the funds came from. They argue that introducing KYC in ICOs would deprive them of their core interest. However, we believe that KYC does not affect our capacity to bridge the gap between the on-chain and off-chain worlds, it actually makes this bridge stronger. It is simply one step added in joining our platform that ensures every party in our ICO that the money invested is not the product of crime.
How to implement the KYC process?
The easiest way to ensure the KYC process in an ICO is to trust an expert third party in analyzing and safely storing personal data. This is the case when using online investment banks like N26 or RegTech companies like Cynopsis Solutions,Civic, and Notokay.
However, asking a third party to store investors’ data can be costly and requires trust in making sure that the personal data will be kept safe by the third party. That is why some companies might want to go through the process themselves.
KYC/AML standard is mandatory for a the development of ICOs on the long term. It even more applicable regarding Security Token Offerings, as securities are tied to real assets or companies, and regulations require that the issuer knows the ultimate beneficial owners.
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Charlotte Robin/legal advisor
