KYC or Know Your Customer refers to a process that banks and other financial institutions use to gather identifying data and contact information from current and potential clients. Its purpose is to prevent fraud, money laundering and other illicit activity, as well as the misuse of financial accounts.
This includes procedures for complying with AML/KYC regulations and since the government’s agenda is to fight theft, fraud, corruption money laundering and terrorist funding, failure to comply with regulation will likely lead to a “crackdown” where authorities take action through the courts.
Some identifying documents required by KYC processes include:
- Driver’s License / Government-issued photo ID
- Social security number
- Voter’s ID Card
Address verification is also necessary. Applicants may submit different documentary proof, depending on the bank’s practices. Some examples include a utility bill, account statement from a different bank or credit card issuer or a lease agreement.
This process sounds a lot scarier than it really is, even though you are obligated to submit some personal information entrusting a third-party to safeguard your confidential private data from prying hackers.
KYC practices aren’t only required to banking institutions. In the cryptocurrency world, the use of digital currency to perform illicit activities has received lots of attention which in one way or another has caused most people to become more skeptical about the industry. Minimizing such impression is certainly beneficial to cryptocurrency arena and its reputation.
KYC process may cause complications as cryptocurrency exchanges and platforms are subject to financial regulations in most, if not all, jurisdictions. Blockchain Technology is still quite new yet it does not absolve itself from the regulations set in order to protect investors/traders.
When it comes to cryptocurrency exchanges, users are often able to create an account before undergoing the KYC process. Reducing and eliminating money laundering and financial fraud are the key advantages of KYC practices. While it makes things more complex and time extensive — especially for both the financial industry and its customers — the benefits always outweigh the inconveniences.
In order to enjoy full privileges offered such as higher withdrawal limits, investors/traders are required to complete the “Know Your Customer” (KYC) verification procedure. This is a common practice to initially restrict a user imposing funding and withdrawal limits before requiring personal documentation.
This practice allows new customer/clients to sign-up and test services before having to submit information since a cryptocurrency exchange’s primary goal is to stay in business and thus government compliance is very important.
SEVERAL GRADES OF KYC
No KYC means that the platform used for cryptocurrency trading does not know who you are. There is no need to provide identity document when signing up and you pay with a private means of payment like cash, western union, or gift cards. This method of buying cryptocurrencies does not require KYC & currently allowed possible in some jurisdictions. This method has more risk and more expensive yet its advantage is the privacy matter of the clients.
Basic KYC identifies you by your payment method and/or by phone numbers. Using payment services such as Visa, Mastercard or PayPal allows third-party services to determine your personal identity as it’s linked to your bank account. On most platforms, customers can engage in cryptocurrency trading up to a certain extent before requiring more personal detail through Basic KYC procedure, limiting the amount users can withdraw. However, most exchanges set a reasonable amount before restricting their users or requiring more personal details.
Full KYC means that you are going to provide documents that prove your identity. It would request you to provide for an ID card, a driver’s license or passport, a proof of residence like latest bank statement, utility bill, or a combination of all this no longer than 3 to 6 months from the issuance date. A new form of verification requires users to capture a clear image of them holding their ID card or piece of paper with the latest date and signature.
With Bitcoin & altcoins gaining popularity over the years, investing in cryptocurrency is still deemed to be highly speculative as there is a lot risk to consider, especially while it’s an unregulated market.
The regulations require these entities to adopt KYC procedures. It assists them in knowing/understanding the customers and their financial dealings better to monitor their transactions for identification and prevention of suspicious transactions.
KYC compliance is somewhat time-consuming but anyone who is engaging with it is always encouraged to comply for his own advantage. However, prior to providing sensitive identifying information, users must do his due diligence first and make certain that the company/exchange is implementing the necessary data security standards to keep the information safe and intact.