Challenges During KYB Crypto For The Virtual Assets Industry

Know Your Business (KYB) verification is essential for banks and financial institutes. Before digitalization, banks complied with regulations such as Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) by traditional verification. However, after the digital world was involved, the regulatory authorities forced fraud prevention regulations on online virtual assets. Regulatory authorities have a motive to create a KYB crypto environment to prevent money laundering through digital assets trading platforms.

What is KYB Crypto?

Interest in cryptocurrency is increasing over time. Everyone wants to invest their money in crypto strokes. Most people now rely on virtual asset trading compared to the stock market. Youngsters invest their earnings in crypto to increase their ROI ( Return on Investment), and digital wallets make it easy to convert any type of currency into digital form. Still, they also open new doors for scammers to proceed with their illicit activities. KYB crypto is the same as traditional business verification but is conducted through online KYB service providers.

How to Comply with KYB Crypto?

KYB crypto is basically not a specific term, same as other fintech industries virtual assets proceed various checks to confirm the identity of the customer and business partners. KYB crypto can be broken down in the process of gathering information about a company before onboarding, such as the business structure, shareholders, or Ultimate Beneficial Owners (UBOs). Given below are the steps that cryptocurrency exchange platforms have to conduct to comply with KYB crypto:

Collect Information

It is mandatory for the crypto platforms to confirm the identity of all the businesses that work with them, including financial institutes, banks, medical insurance, and other companies. The first step is to gather the necessary data to reveal the identity of the company, including name, address, license number, contact information, and other data. The required data depends on the company policy and jurisdiction.

Verify Business Entity

The next step is to verify whether the business entity is located in the real world or provides a fake address. This involves attesting to the company's registration license, checking the address and website. It will give confidence to crypto platforms that businesses they are working with exist in the real world, not the counterfeit companies.

Validate Document

Most of the time, bad actors provide the document of the other person's name by faking the name and address. To check this, crypto platforms validate the records provided by businesses by attesting visible security features like borders, signatures, fonts, etc. This is done to ensure that the documents are not forged and that the person is who they claim to be. Crypto platforms can also request a photo of the business's owner to verify the identity further.

Compliance With Regulations

During the KYB verification, crypto firms must ensure their compliance with the obligations of regulatory authorities such as Financial Crimes Networks (FinCEN) and the Financial Action Task Force (FATF). So they can prevent their company from the regulatory department's hefty fines. For compliance, they can cross-check the businesses' documents through the sanction list of the AML and Politically Exposed Persons (PEPs).

Verify UBOs

Once virtual assets confirm business is legitimate in the last step, they ensure the hands behind who are running the onboarding companies are not involved in any illegal activities. It minimizes the risk of financial scams by investigating the background of the business. During the KYB, crypto firms can check all UBOs against the watchdog sanction list and the history of banking transactions. It will protect crypto firms from the exposure of the bad actors.

KYB Crypto Challenges for Virtual Assets Firms

KYB is Time-Consuming

In order to adhere to anti-money laundering regulations and protect their business clients, many banks automate KYB verification. Various KYB compliance programs simplify electronic authentication. Even with automation, KYB still takes a lot of time. This is so that banks may continuously monitor the actions of their business clients and verify their information without interfering with the online services they provide to their customers.

Complex Structure

Due to factors including the increasing digitalization of financial services and ongoing regulatory changes in many jurisdictions around the world, financial services organizations have found it difficult to keep up with KYB's complexity. This complexity makes it difficult to quickly identify and onboard new customers, leading to lengthy onboarding processes and delays in providing services. Additionally, the ever-changing regulatory environment makes it difficult for organizations to stay up-to-date with the latest KYB requirements.

User-Hostile Platform

Understanding KYB and how to use KYB service platforms to comply with strict requirements is the banks' largest difficulty. Most financial institutions don't know how to use digital KYB verification, thus, they frequently need to learn.

In Bottom Line

Even if passing the KYB procedure isn't one of the highlights of running a business, it can be simpler if crypto firms research beforehand. It will go quicker virtual assets, follow directions, and ensure all of the business paperwork is in order. This can lead to costly fines and even legal troubles. Therefore, organizations must ensure that they have an efficient KYB process in place that is compliant with all applicable laws and regulations.