Crypto space has been abuzz since the previous decade, the rise of which is attributed since the inception of Bitcoin. Since then, the world hasn’t looked back and has widely accepted the concept of virtual currencies as a means of trade. Facilitating people by caping on the $1.7 billion unbanked, which is one part of the argument, challenging the traditional financial model is another. The latter of which is considered a direct threat to the standard existence of the financial ecosystem. Due to which a medium of regulated trading such crypto-based currencies was necessitated, in a more transparent manner. However, are crypto exchanges in a state to introduce compliance laws upon their existing and new customers? Let’s dive in deeper.
Confusion Amongst Institutions and the System
Apparently there is no central regulation that governs the use of cryptocurrencies in a consistent and transparent manner. As the concept is new, well not entirely but still highly volatile and industry-altering. Financial regulators are still in the process of witnessing, how crypto can be incorporated into the existing financial system and still be regulated. Reaping the benefits and capping the unbanked, who were previously not under the ‘financial net’. In the present situation, it’s a state of confusion and personal adoption. Leaving many crypto exchanges to perform little to no regulatory practices in place. By this, we mean no adherence to AML & KYC Compliance regulations.
Why Crypto Exchanges Voice their Displeasure
As more cryptocurrencies come into the crypto space, so do more crypto related exchanges where the trading of these virtual currencies can take place. In order for these exchanges to gain regulatory approval, these entities need to show adequate KYC compliance. Regulators require KYC to be performed on a user before registration or processing of trading activities. KYC according to these exchanges increases the friction faced by users, proving to be an unnecessary step leading to an increase in drop out rates.
This according to them, would cause customers lost from one exchange to be onboarded by the other which does not have any KYC measures implemented. Exchanges are in a race to onboard more individual on their platform and the greater the users, the more trading takes place. Increasing the worth of the platform and generating more revenue. Since crypto exchanges are already looked at with severe skepticism, these businesses are very reluctant in implementing practices that can hamper their efforts or severely affect the prospect of their business growth.
With the implementation of AML KYC compliance, crypto exchanges have to not only bear the impact and legal implications with becoming a regulated entity. But also bear the cost, which adds to the hefty toll on these exchanges.
What’s Necessary for Successful Operations
KYC Compliance is an inevitable acceptance that crypto exchanges have to maintain by a delicate balance in their approach towards regulatory compliance. First by accepting what’s necessary to ensure their transparent and legal footing. Followed by Implementing an in house AML KYC compliance or through dedicated external providers specialized in the blockchain use-case.