KYC Explained

2 August 2023

6m read

TL;DR Financial service companies must identify and confirm their consumers as part of Know Your Customer (KYC) requirements. To combat financial crime and ensure customer due diligence, they undertake this as part of their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance efforts.
By gathering and confirming client information, KYC actively thwarts illicit conduct. These controls increase industry trust and aid financial service providers in risk management. KYC is now standard practice across crypto exchanges. However, some detractors claim that it eliminates the privacy and decentralized features that make cryptocurrencies so well-known.


Financial service providers are required to comply with a common regulatory obligation known as KYC. These controls primarily work to prevent the funding of and money laundering from illegal activities. KYC is a crucial component of anti-money laundering laws, making it a crucial safeguard for cryptocurrencies in particular. To protect clients and their assets, financial institutions and service providers like Metavest are being forced to develop stringent KYC procedures.

What exactly is KYC?

You might be required to supply one of the following when completing KYC: * Government ID * Driver's license * Passport
Government identification
a driving permit
It's crucial to authenticate a customer's location and address in addition to their identity. Basic details like your name and date of birth are included on your identity documents, but more information is required, for instance, to determine your tax residence. Most likely, you will need to complete more than one KYC stage. Financial service companies frequently need to periodically re-verify the identification of their clients.

Who oversees the KYC compliance process?

Although country-specific KYC regulations vary, there is an international collaboration on the essential data required. Most of the AML and KYC procedures in use today were established in the US by the Bank Secrecy Act and the 2001 Patriot Act. Although the EU and the Asia-Pacific region have created their own legislation, they heavily resemble US laws. The primary framework for EU nations is provided by the PSD2 laws and the EU Anti-Money Laundering Directive (AMLD). The Financial Action Task Force (FATF) organizes international collaboration on regulatory requirements on a worldwide scale.

Why is KYC necessary for cryptocurrency?

Cryptocurrencies are frequently utilized for tax avoidance and the laundering of criminal funds because of their pseudonymous nature. Enhancing cryptocurrency regulation enhances its repute and ensures that taxes are paid as required. In the crypto sector, KYC checks are necessary for three main reasons:

  1. All transactions on the blockchain are final. Because there is no admin to assist you if you make a mistake, money can be taken or moved without being able to be recovered.
  2. Taxation and the legitimacy of cryptocurrency in many nations are still regulated issues.
    Although KYC extends the time required to open an account, it offers definite advantages. Although the typical client won't necessarily be able to see them, KYC has a big impact on preventing fraud and keeping your money safe.

What are the advantages of KYC?

There are some less obvious advantages to KYC. However, it significantly goes beyond only preventing fraud and can enhance the financial system as a whole:

  1. When a customer's identification and financial background are established, lenders can more quickly determine their risk. More responsible lending and risk management result from this method.
  2. It fights against financial fraud and other forms of identity theft.
  3. As a preventative step, it lowers the likelihood that money laundering will take place in the first place.
  4. It enhances consumer confidence in financial service providers' security and accountability. This reputation has an impact on the entire financial sector and may attract investment.

Decentralization and KYC

Exchanges are often required by governments and authorities to do KYC checks on their consumers. Services that convert fiat currency into cryptocurrency are more appropriate, even though obligatory KYC is very challenging to execute for crypto wallets. While some investors are purely speculatively interested in cryptocurrencies, others actively value and utilize them.

Arguments opposed to KYC

Although KYC offers many obvious advantages, some people still find it to be controversial. Due to its history and heritage, arguments against KYC are increasingly prevalent in the crypto market. Typically, privacy and expense concerns account for the majority of its criticism:

  1. Conducting KYC checks entails an additional expense that is sometimes passed on to the client in the form of fees.
  2. Some people lack the paperwork needed for KYC checks or may not have permanent residence. They find it challenging to get access to some financial services as a result.
  3. Data security may be lacking at careless financial service providers, and hackers may result in the theft of your personal information.
  4. Some people believe that it conflicts with the concept of decentralization.

Concluding remarks

Despite all the views, KYC stands as a basic procedure to this day. It performs one of the most crucial roles in the struggle against crime and money laundering. Although KYC checks can seem like an inconvenience, they actually offer a lot of security. You may trade cryptocurrencies on exchanges like Metavest with better security and confidence thanks to KYC as part of broader AML safeguards.

Latest Releases