Blockchain: Transforming Industries and Empowering Business Growth

KYC/AML in Crypto Industry: Everything Business Owners Should Know

As the crypto industry is booming, more and more people are becoming interested in cryptocurrencies. With the surge of new investors, companies come to an impasse when it comes to verifying their clients' information.

KYC/AML is one of the most important measures that can ensure your company's safety from frauds or scams while developing a business relationship with your cryptocurrency buyer. This means that Know Your Customer - KYC- and Anti-Money Laundering- AML have become vital not only for traditional companies but also for crypto businesses around the world.

The reasons behind this increasing need are simple: cybercrime is still prevalent since there are no regulations on ICOs, P2P transactions, etc.; the use of cryptos poses various money laundering risks; some countries have already banned cryptocurrencies, and in others, regulators are currently considering such a possibility.

KYC/ AML Compliance could help you to adopt the right procedures and custom-tailored solutions for your business and be rewarded with solid and long-lasting relationships with your customers and investors. 

What is KYC in crypto?

KYC is the acronym for "Know Your Customer", which means that your company will collect information about their customers in order to prevent fraud and money laundering. Simply put, KYC has become an integral part of any crypto business that requires you to do a full background check on every client who wants to get involved with cryptocurrencies.

Even though it's not mandatory by law yet, there are companies already asking for KYC documents - mainly due to the fact that criminals always look for ways to create fake accounts and transactions in order to cover their tracks or get away unpunished after making illegal deals.

The use of pure anonymity in cryptocurrencies has created a big problem for regulators since they can't track down suspicious activities if identity verification isn't required. Since cryptocurrencies are often used for money laundering, terrorism financing or tax evasion, the KYC requirement has become more pressing than ever.

To comply with KYC laws and avoid legal trouble, you should make sure that your clients provide you with identification documents before they start making transactions on your platform. It's also recommended to keep copies of them on file in case authorities ask about it later. 

There are two main types of customer due diligence - "Customer Identification Program" CIP and "Know Your Customer" KYC. The first one asks businesses to do initial verification of their customers while the second is an ongoing process that requires updates every time a client adds additional information to their profile.

What is AML in crypto?

AML stands for "Anti-Money Laundering" and is a worldwide compliance standard used for preventing financial institutions from being involved in any suspicious activity. AML protects fraudsters, scammers, tax evaders, and terrorists by keeping their business transactions hidden from authorities.

The AML procedure is part of the KYC verification that can be applied to your platform in different ways. If you know exactly who your customers are online - for example, if they're on one of the social media networks or chat apps - then there's no need for them to register again with new user details. On the other hand, if you deal with anonymous customers who simply want to get involved with cryptocurrencies without disclosing any personal information at all, then it's best to ask them for an ID so their identity can stay verified at all times.

AML usually works hand in hand with KYC to make sure that clients won't be able to use your platform for illegal activities. Even though anonymity is allowed by cryptocurrencies, you still have the right - and obligation - to check every single transaction being made on your platform.

Why does your crypto exchange need KYC/AML?

As mentioned earlier, KYC and AML have become extremely important in the cryptocurrency world since they allow you to provide a safe environment for your users while preventing them from being involved with anything illegal.

In case authorities find out that a business is working without these measures in place - or if one of their customers gets involved in illegal activities while using your platform - then it's extremely likely that the platform could be shut down just like how other companies have been punished by law enforcement agencies recently.

The KYC/AML procedure also allows you to secure long-lasting relationships with your clients. In other words, KYC helps you prevent fraudsters from turning into your loyal customers because whenever there's a verification process going on, criminals won't even bother to try and use your platform. There are several benefits of implementing KYC/AML with your cryptocurrency exchange:

Better risk assessment

By verifying your users, you'll be able to figure out the possible problems that might arise from them in the future. For example, if a cryptocurrency wallet is tied to terrorism financing or other illegal activities, then it will most likely be blacklisted by law enforcement agencies around the world. If this happens, your platform could also get blacklisted so it's best to keep track of all registered accounts on your KYC/AML list.

Increased trust

Implementing these procedures lets various businesses know that you care about every single transaction being made on your website which results in increased trust among people who are looking for safe transactions. By taking their safety into consideration - and making sure that they don't have any problems with authorities or financial institutions - you're creating a good reputation for your website while also protecting your clients.

Improved user-experience

The KYC/AML procedures allow you to keep track of your users and their transactions, which makes it easier for you to deal with them whenever a problem arises. For example, if a customer is unable to pass the verification process then you can simply put that person in touch with your support team so they can help resolve the issue much faster than usual.

In short, implementing KYC and AML on your cryptocurrency exchange will help protect its reputation while also increasing trust among people who are looking for safe ways of making transactions online.

How do Seven Bits help you secure your cryptocurrency exchange?   

Seven Bits is a leading cryptocurrency exchange development company offering a complete range of bespoke services. We can help you secure your existing exchange by implementing KYC/AML. Our Blockchain Center of Excellence (CoE) team also helps in legacy migration and upgrading its security. Get in touch with us at to get started.