Effective AML Compliance at Cryptocurrency Exchanges

There is a lot of talk in the emerging cryptoeconomy as to when regulations apply to crypto-oriented services, but when it comes to Anti-Money Laundering (AML), Know Your Customer (KYC), and Combating the Finance of Terrorism (CFT), there is also the question of what an effective cryptocurrency compliance program might look like. Craig Adeyanju at Cointelegraph has provided us with a good overview of the AML, KYC, and CFT compliance programs being implemented by crypto exchanges, which have been the focus of much of regulators’ attention.

Ethos defines a cryptocurrency exchange as an “online platform in which you can exchange one kind of digital asset for another based on the market value of the given assets.” Binance for example, is a major crypto exchange. As Cointelegraph points out, crypto exchanges are an important part of the cryptoeconomy, which is why regulators focus on crypto exchanges to mitigate cryptocurrency’s money laundering and terrorist financing risks through AML, KYC, and CFT programs.

Cointelegraph writes that “AML and CFT involves KYC throughout transaction lifecycles”, involving four levels: 1. Customer acceptance policies (CAP), 2. Customer identification programs (CIP), 3. Continuous monitoring of transactions, and 4. Risk management. When it comes to crypto exchanges, however, the process is handled differently depending on whether the exchange is a fiat currency-to-crypto exchange, or a crypto-to-crypto exchange.

Because fiat-to-crypto exchanges deal with traditional financial institutions dealing in government backed fiat currencies, there is usually some level of KYC involved. Cointelegraph observes that one fiat-to-crypto exchange, Coinbase, employs a digital identity solution called Netverify in order to remain regulatory compliant. It also implements the Coinbase Trade Surveillance Program, which aims to watch the markets for “bad actors.”

Crypto-to-crypto exchanges are not as exposed to regulations according to the Cointelegraph piece. Binance, for instance, can allow withdrawals of up to 2 BTC per day without any form of ID verification. HitBTC, another crypto-to-crypto exchange urges users to submit KYC documents verifying their identity to their compliance department. Cointelegraph notes that many of the top crypto-to-crypto exchanges have not been proactive about compliance.

Implementing robust AML, KYC, and CFT compliance programs will go a long way to alleviating uneasiness about the risks of cryptocurrencies in the financial sector. Though the burdens of compliance may be difficult for companies, the benefits of more mainstream acceptance of the cryptoeconomy would be substantial.