What are KYC and AML in cryptocurrency trading?

Governments and financial authorities around the world are strengthening the boundaries of cryptocurrency exchanges and platforms to establish anti-money laundering (AML) and identity verification (KYC) procedures.

In the past few years, regulatory guidelines specific to cryptocurrency trading have been in place, including self-regulatory bodies such as CryptoUK.

The cryptocurrency community is committed to becoming a legitimate member of the global economy in compliance with global financial regulatory procedures.

IronX Exchange was created as a joint venture between IronFX Group and EmurgoHK, and has established itself as a fully regulated exchange through management supervision through a third party and appropriate KYC and AML procedures implemented by the bylaws.

Let’s see what this means.

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What is the KYC process of IronfX (IronX)?

KYC stands for Know Your Client and is an identity verification process that is conducted for transparent management and maintenance of exchange platforms.

Most of the major financial institutions around the world do this.

In order to open an account, the customer must provide appropriate documentation to verify identification, proof of address, email address, phone number, occupation, main source of income, and crime.

In some cases, important information may be requested during the above procedure.

This includes political connections, credit rating companies’ financial blacklists, and suspicion of ties to terrorist groups.

This process ensures the safety of both the financial service provider and the customers who use it.

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What is AML?

AML stands for Anti-Money Laundering, a term that describes the procedures and laws by which financial companies can recognize and report on threats of money laundering activities.

Money laundering refers to the activity of trying to bring illegally obtained money back into the economic system.

Central banks in many countries have established rules on this to prevent financial terrorism.

Financial terrorist activities include tax evasion, support for terrorist organizations, market manipulation, and transfer of funds through unauthorized transfers to unauthorized accounts.

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Why the above procedure is necessary for the cryptocurrency market?

Despite the inherent differences between Fiat and cryptocurrency, exchanges around the world are putting considerable effort into improving the process.

It is true that an exchange is a major target for regulators as it is a place where all investors gather.

Digital assets that have a decentralized nature can be used for illegal fund storage.

Personal information may be disclosed to government regulators during the KYC/AML process, but this is not intended to infringe privacy.

This builds up overall trust, making it attractive even for investors who are still skeptical of cryptocurrency investments.

In addition, this will lead to more liquidity and stability as new investors participate.

The reason you can trust the financial markets is the clear regulation of penalties for fraudulent activity. This is essential to ensure that the exchange does not swindle investors’ funds or go bankrupt. In addition, in the process of handling customer complaints and inquiries by establishing a security protocol, it will become a more robust cryptocurrency exchange. We will build an excellent security foundation that can withstand exchange intrusion attempts or hacking. As more than 68% of the world’s cryptocurrency exchanges operate without identification procedures, it is an obstacle to the introduction of the above system.

The IronX Exchange is licensed for PI by the Financial Supervisory Commission (FCA) and applies KYC and AML procedures to protect investors’ funds. IronX Exchange aims to increase market liquidity by providing an easier way and environment for investors to start trading cryptocurrency.

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Most unregulated cryptocurrency exchanges

One of the problems blocking the activation of the cryptocurrency market is that most exchanges are not officially registered and operated. This has consistently raised issues as it could harm the credibility of the crypto community and cryptocurrency assets. There is still debate in the industry over the implementation of the KYC/AML regulations. An analysis study by P.A.ID Strategies found that 68% of cryptocurrency exchanges do not comply with the KYC process. This is a part that can be used for money laundering beyond investing in places where safety is not secured.

IronX Exchange will provide DLT (Distributed Ledger Technology) licenses in a variety of countries, and licenses are underway for Malta and Gibraltar, starting with Estonia, which has already been approved. If the exchange is not officially regulated, cryptocurrency investors may face a difficult situation. DLT licensing regulations enable transactions in a more structured, secure and stable network environment.

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Consequences caused by non-regulation

Most cryptocurrency exchanges operate without formal regulation. Therefore, users feel anxious when investing their assets in digital assets. There are still no clearly defined and categorized parts across the board, including tax laws on digital assets. As a result, active participation of investors is limited, which in turn leads to a lack of liquidity in the market. In many transactions, slippage occurs significantly, and transaction costs also increase. Eventually, a phenomenon like this works negatively for everyone.

The absence of a regulatory system results in the exchange’s lack of expertise as a financial services institution that protects investors’ funds. Unlike the use of existing financial institutions, there is no way to be protected in situations such as technical problems or company bankruptcy arising from customers using the platform in the current situation.

Eventually, amid uncertainty like this, investors will have no choice but to lose confidence in the marketplace, and security issues will continue to occur, leading to potential losses of millions of people.

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Lack of KYC/AML procedures that can lead to illegal criminal activities

If the KYC/AML procedure is not implemented, there is a possibility that it will be exposed to various illegal activities and fraudulent activities. A recent study report confirmed that 97% of criminal bitcoins have flowed into unregulated cryptocurrency exchanges. In addition, by the third quarter of 2018, it was counted that approximately $97 million worth of cryptocurrencies were stolen from exchanges around the world.

A recent report from the Wall Street Journal showed that even the best exchanges around the world cannot be free from the risk of pump-and-dump scams. Anonymous users create an investor group for pump-and-dump and drive a rapid rise in tokens. Regular investors purchase tokens to participate in this uptrend and expect the price to continue to rise. The Pump & Dump group will dump all tokens when the price set by them is reached. This is a type of serious financial fraud that undermines the market’s balance. Volatility increases and investors lose.

In order to cope with this uncertain and unstable cryptocurrency environment, 88% of exchanges today want to be regulated. IronX will be duly licensed and subject to supervision and has already been licensed by the Estonia Financial Intelligence Agency. IronX is committed to providing a safe trading environment through regulations related to operating system and funds storage, fast network speed, and privacy protection.

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Essential Devices to Protect Investors

The secret of blockchain’s sensational popularity is, first of all, its safety. Like the EMV chip introduced by existing banking institutions to protect customers, the security of financial transactions through an advanced transaction system such as distributed ledger technology of the blockchain, transaction secrecy device, and mutual nodes distributed storage of transaction details. Are adding.

With the recent rapid increase in financial fraud, a more convenient and safer transaction system is required. However, due to the vague difficulty with the blockchain, credit card payment systems are preferred until now.

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Security risk and statistics

In order to prevent the rapidly increasing cyber financial crimes, continuous development and research on the blockchain is required. Cyber ​​financial crime recorded 3 trillion dollars in 2015 and is expected to reach 6 trillion dollars in 2021.

Financial crimes through online digital advertising are on the rise and are causing enormous losses to companies worldwide. According to PWC statistics, financial fraud crimes result in damages of $51 million each day, and annual financial fraud damages amount to approximately $19 billion. These figures indicate that more than half of companies around the world do not properly cope with financial cybercrime.

On the other hand, if we count the number of cases that have not been officially reported due to embarrassment, fear of defamation, or disappointment of the current government’s powerlessness, the amount of damage is expected to exceed the above report.

As a solution to the above cyber financial fraud, safe transactions and safe money management are required.

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