The United States and Europe have laws that require of both fiat and cryptocurrency exchanges to follow know-your-customer (KYC) protocols, which may involve some form of ID verification and sometimes even proof of residence.
However, a study commissioned by Mitek, a digital identity verification system provider, shows that over two-thirds of cryptocurrency exchanges and wallets “fail to conduct proper identity checks.” According to Mitek, this allows criminals to move their money without restrictions.
Granted, it is hard to justify requiring KYC checks for most wallets as they are essentially pieces of software that do not store the coins.
However, as we discussed with Paul Puey from Edge not too long ago, hosted wallets do not get that kind of leeway. These are wallets which store private information about customers and essentially manage their coins for them as a bank would.
P.A.ID Strategies, which conducted the study on behalf of Mitek, examined 25 exchanges and wallet providers and rated each with an ID verification score from 1 to 10.
As expected, exchanges like Coinbase and Poloniex got a rating of 9, while CEX.io and YoBit got scores of 6 and 4, respectively.
Only eight of the entities studied demanded any official documentation before allowing a trader to use the platform.
“It was notable that the majority of crypto exchanges and wallets do not have proper KYC procedures in place and are not ready for next year’s AMLD5 introduction. Some of this may be explained by the fact that some in the crypto currency sector are very keen advocates of privacy and anonymity. They do not believe that people should have to comply with KYC and AML regulations and believe that as long as the transaction can be trusted to be completed then this should be enough,” the report said.
Interestingly enough, the research also looked at Localbitcoins.com, a marketplace that connects Bitcoin buyers to sellers who could execute their transactions in cash or through bank transfers. It is not so much an exchange but a Craigslist of sorts for Bitcoin, so it is not bound to the same KYC and AML requirements as bona fide exchanges.
It’s also worth noting that P.A.ID Strategies’ research includes wallets like Blockchain.info, which is not a hosted wallet and thus unlikely to encounter any KYC compliance enforcement.
If we look only at the 14 exchanges analyzed, the percentage of KYC non-compliant entities goes down to 42%.
This article appeared first on Cryptovest