Top 5 Crypto Exchanges – Identity Verification Procedures
In the last six months, cryptocurrency exchanges have been flooded with new investors, with some exchanges onboarding 100,000 users a day. It’s no wonder then that there are significant delays during account creation, to such an extent that some exchanges suspended onboarding new clients altogether.
Of course, no one could have predicted the sudden surge of interest in the market. Exchanges were unprepared for the onslaught and quickly scrambled to scale up their support staff, infrastructure and oversight.
The technology to handle the huge amount of trading volume also needed to be ramped up. As opposed to stock markets and other mature exchanges, which had decades to build up their systems, these companies had to ramp up in weeks.
Identity verification procedures, while necessary for Know Your Customer (KYC) compliance, often made it difficult for clients to sign up and for the exchanges to process clients in a timely manner. These ID procedures are often handled by manual processes, putting massive demands on support staff.
While lately the market has cooled, the volatility of the crypto market is well-known so it wouldn’t be surprising for the market to come back strong. If it does, people will probably flock back to try and sign up for new accounts. To that regard, let’s examine how some of the different exchanges are handling ID verification. What steps are they using, how easy is it to sign up and what security measures are they taking to protect the consumer and their business?
Coinbase, founded in 2012, is a US-based digital currency wallet and platform. It has over 10 million users, has traded over $50 billion worth of digital currencies and is available in 32 countries.
While Coinbase has account limits, these limits are determined based on the types of verifications that have been added to the account, the account age, purchase history, payment method and other factors.
The types of verifications include phone number, personal details and photo ID. In the US, a further step is to add your SSN.
Kraken is a US-based crypto exchange that was founded in 2011. They state they are “the largest Bitcoin exchange in euro volume and liquidity and also trading Canadian dollars, US dollars, British pounds and Japanese yen.”
Kraken has five tiers of verification requirements, depending on how you are going to use the account.
Tier 0 – An email address is the only requirement, but this Tier doesn’t allow for deposits, trades or withdrawls.
Tier 1 – To start trading requires entering full name, date of birth, country and phone number. However, while trading in both digital and fiat currencies are allowed, deposits and withdrawals are digital currencies only.
Tier 2 – In addition to Tier 1 requirements, you also need to provide an address. Depending on country of residence, fiat currency funding, as well as bank deposits and withdrawals may be available.
Tier 3 – For Tier 3, in addition to Tier 1 and 2 you’ll need to upload a valid Government ID and a recent proof of residence. In some situations, a further photo ID confirmation is necessary (a picture of you with the ID and a written declaration). This Tier allows for higher funding limits than Tier 2 and allows you to deposit fiat in the US, Canada, Germany, Japan, and other countries.
Tier 4 – Tier 4 is for the highest value accounts and is available as an individual or corporate account. The requirements are the same as Tier 3 with the addition of a signed application form and KYC documents.
Note that currently Kraken accepts USD, EUR, GBP, JPY and CAD (if the proper verification Tier requirements are met).
Bitfinex is a cryptocurrency exchange that was founded in 2012. They state they are the world’s largest exchange by volume for trading Bitcoin against the US Dollar.
It provides exchange trading for 38 currencies/tokens and also provides margin trading, margin funding and an over-the-counter (OTC) market for large trades. Thus, it has three types of accounts: Trader (typical account), Funding and Exchange.
To withdraw or add fiat currencies to an account, verification is required. Note, processing times for verification can take up to 5+ weeks. However, a user can deposit, trade and withdraw cryptocurrencies immediately upon account opening.
To verify an individual account, the user must provide telephone number, email address, residential address (with supporting proof, such as a utility bill less than three months old), two forms of valid government issued identification with picture and a bank statement under the same name.
OKEx was founded in 2014 and is one of the top digital asset exchanges by trading volume. It serves millions of users in over 100 countries and operates out of Hong Kong.
OKEx uses three levels of verification, depending on the single transaction limit. Level 1, for accounts with a single transaction limit of $10,000 per order (or $2,000 for trades involving fiat currency), require Nationality, a real Name and a real ID Number. Note, OKEx does not accept accounts from certain countries, most notably Hong Kong and the US.
Level 2 accounts, for trading with single transaction amount over $10,000, requires document verification. Users submit three images; the front of their ID card, the back of their ID card, and one where they are holding the government issued ID, with both the face and ID are fully and clearly in the image.
Level 3 accounts, which allows transactions above $200,000 and up to $500,000 require video verification. The user needs to download the OKEx APP to complete this process and complete both Level 1 and Level 2 verifications.
Binance is a cryptocurrency exchange platform that combines digital technology and finance. As stated in their Techcrunch profile, “the company provides access to exchange digital currency pairs on the market while maintaining security, liquidity, enabling a safe and efficient deal with anyone, anytime and anywhere.” According to Yahoo Finance, it is the world’s largest cryptocurrency exchange by trading volume.
Binance is a pure cryptocurrency exchange and does not support trading in fiat. For withdrawals up to two BTC per day, no identity verification is required. For withdrawals up to 100 BTC per day, photo ID needs to be uploaded.
Identity Verification for Crypto Exchanges
For four out of the five major crypto exchanges listed here, the ID verification procedures are fairly similar. The first step is eIDV (electronic identity verification), which requires filling in basic identity information. For higher value accounts, an additional document verification process is required.
The exception in this sample is a pure cryptocurrency exchange, which doesn’t accept fiat currencies. One possible rationale for their policy is that other exchanges — which do accept fiat currencies — are running KYC checks on funds that are entering or leaving the system.
As more users sign up and more money enters the crypto space, regulators will further define the specific KYC rules that exchanges need to follow. On March 20, the G20 issued a communique stating “We ask the FSB [Financial Stability Board], in consultation with other SSBs, including CPMI and IOSCO, and FATF to report in July 2018 on their work on crypto-assets.”
Such recommendations are probably welcome by the exchanges as they might offer clarification, as well as continuity across jurisdictions. It’s doubtful that KYC requirements will be somehow watered down by the new standards. To be ready for whatever rules are proposed in July, exchanges should ensure their ID processes are thorough, secure, compatible with compliance and as quick and seamless for consumers and their staff as possible.