The digital currency sector saw astounding growth during the past few years. However, more recently, the scepticism surrounding its legitimacy and security has made investors shy away from it. This is one of the major reasons why crypto saw a striking drop of nearly 75% in its investments. Hence measures like anti money laundering or AML compliance is becoming increasingly important for the cryptocurrency sector.
The aura of illicitness surrounding digital currencies is due to the fact that a lot of criminals use the space to their advantage. One of the reasons for this is the anonymity it renders to its users and the lack of regulation in the sector as a whole. This is what makes regulatory authorities, governments and investors suspicious about the industry in its entirety.
Is Regulation the Answer?
The comfort level of investors with conventional securities is due to the fact that they are regulated and a secure means to invest. The main reason is the fact that banks and financial services institutes adhere to KYC (Know Your Customer) and AML requirements. Such regulations are put in place to identify the investors and track the original source of money laundering. Such regulations have been put in place by FATF – the global financial regulator that has been cracking down on money laundering activities used to finance terrorism.
Such regulation measures are what give traditional currencies their legitimacy. It helps banks make sure that no financial crime can take place through their platforms. For a while now, governments and regulatory bodies have been encouraging the crypto sector to regulate their practices by introducing such verification procedures. KYC verification methods can enable crypto exchanges to identify and verify their users and thus make sure they have legitimate credentials. This can also reduce any potential for fraudulent activities in the space surrounding the crypto world.
KYC/AML Verifications to Counter Fraud
The major reason for crypto’s anonymity is the blockchain based model of trading. The blockchain is basically a public ledger that records every crypto transaction that takes place. It eliminates the need for a middleman thus keeping the anonymity of the investor intact. KYC and AML verification help eliminate this anonymity. All this requires from crypto exchanges is that they verify the investor through an online verification procedure. Users can verify themselves by providing proof of identification and scanning their ID documents digitally. This helps in tracking down the original owner of the currency and tracing any illegal activity should it take place.
Another layer of regulation that cryptos must adhere is to perform AML checks. AML compliance has played a key role in helping banks regulate their practices and curbing any sort of financial crimes. The warning of the imposition of fines and penalties can urge cryptos to implement compliance regulations across the board. The implementation of anti money laundering compliance by cryptos can, therefore, help them to establish a sense of trust among investors and can help bring crypto back to its feet.
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