In the last few years, digital currencies have seemingly come out of nowhere to gather significant interest. For example, the market cap of Bitcoin, a decentralized digital currency, has climbed from under $50 billion to a high over $300 billion in the last two years. With all the public interest, regulators are increasingly scrutinizing digital currency platforms (exchanges) to make sure that they operate fairly, securely and in compliance with various financial laws and regulations.
One regulation has gone from a nonfactor to a standard requirement for anyone putting money into an exchange, and that’s Know Your Customer (KYC). In a previous post on cryptocurrency exchanges, we found that four out of five already had KYC procedures in place, and the fifth has since added them.
While KYC processes are gaining universal adoption throughout the industry, exchanges want to make sure that the process is quick and seamless; delaying customers during onboarding risks abandonment and loss of an ongoing revenue opportunity. Smart digital currency platforms look for KYC solutions that can provide the necessary compliance while simultaneously delivering a simple customer onboarding experience.
Bitbuy, a digital currency platform operating out of Toronto, Canada, knew they had to come up with a KYC solution that was faster than users uploading photos of their identification documents. They found that, according to Adam Goldman, founder and president of Bitbuy, “people often don’t have their documents handy when signing up, and as a result would drop off during the sign-up process. It was a slow, unscalable solution that needed to change in order to sustain our growth.”
Getting regulatory compliance right
As mainstream companies such as Starbucks and Facebook announce digital currency projects, the regulatory scrutiny over the sector is increasing. U.S. Treasury Secretary Steven Mnuchin stated, “we will not allow digital asset service providers to operate in the shadows and will not tolerate the use of the cryptocurrencies in the support of illicit activities.” For companies that get regulatory compliance right, like Coinbase, which added 8 million users in the last 12 months, and Robinhood, which raised $323 million, the potential is massive.
Unfortunately, a global report of 216 exchanges found that 69 percent do not have “complete and transparent” KYC procedures. The study classifies 114 exchanges as high risk in regard to Customer Due Diligence/KYC. The report concludes that “those firms that choose not to seek authorization and become ‘mainstream’ are likely to meet with close scrutiny from law enforcement agencies due to the fact that any value exchange that is performed and not licensed is likely to be considered unlawful.”
Implementing systems that help ensure compliance with existing financial regulations and future responsibilities is imperative for any player in the field to build a reputation as a trusted and secure solution.
Learn More: Download the Bitbuy Case Study
Learn how Bitbuy is scaling their international growth with customer onboarding procedures that are convenient, compliant and user-friendly.