Crypto exchanges have always been blamed to not verify identities of investors using their platforms and services. A lot of governments have laid a ban on these crypto exchange under the pretext that they are institutions that black money holders use to hide their money.
A recent research conducted by P.A.ID Strategies has revealed that nearly 68% of the exchanges operating in the USA and Europe do not do enough background checks before onboarding a client or an investor. The research was commisioned by Mitek, a company that sells identity verification technology.
Risk of hacks and criminal activities
According to the shocking outcomes revealed in the reports, more than 75% of the 25 prominent crypto exchange in North America and Europe fall short of inspecting new customers will onboarding them on the crypto exchange. The report further stated that 68% of all exchanges researched allow its new users to trade cryptos and fiats with no KYC compliances- with most needing just an email address.
The Research picked up 25 crypto service providers based on the volume of transactions they handle every day. These included some prominent crypto exchange and wallets like Kraken, Coinbase, Gemini, and Poloniex, and some wallets, including Luno, Bonpay, and Mercatox.
John Devlin, principal analyst at P.A.ID Strategies, in a news release said
“Cryptocurrency wallets and crypto exchange want to enjoy the same trust as the wider traditional financial services, but for this to happen they need to rise above the sometimes-dubious reputation of cryptocurrency’s past and be seen as ‘model citizens’ of the economy,”
Services providers fall short of AMLD5
These loopholes and lenient practices by crypto exchanges and wallets have compelled governments and regulators to contemplate introducing a framework to reduce fraud, malpractices, and losses stemming from poor practice. These regulations would safeguard that there is a degree of accountability and compliance with action taken to minimize criminal activity, including tax evasion, money laundering, and funding criminal activities.
A similar regulation is expected to be in place in Europe bu 2019. The new European Union money-laundering prevention directive also known as AMLD5, requires financial entities, including those selling virtual currencies, to provide more detailed information on their clients and ensure due diligence when signing them up. And if these reports revelations are to be believed these companies have a long way to meet the compliances standard.
Although cryptocurrencies are known to be anonymous about their holders, is it necessary for this service providers to comply with Identity norms? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.