If you’ve ever opened a bank account, you likely completed KYC when you showed your driver’s license or ID card. Stock brokerages have similar identity verification requirements. Now, it’s the crypto market’s turn to become compliant with KYC regulations that have been implemented throughout the world.

What is KYC?

KYC’s meaning in a crypto context refers to identity verification, monitoring, and reporting obligations for financial service providers, including crypto exchanges. But what is KYC crypto exactly? Short for Know Your Customer, KYC has its roots in Anti-Money Laundering (AML) regulations. The process entails both identity verification and ongoing monitoring, making financial service providers responsible for the KYC process.

Through required identity verification and reporting, KYC helps authorities detect fraudulent activity or illegal transactions and identify the actors involved. However, KYC’s existence also acts as a deterrent, preventing fraudulent or illegal activity that may be possible in its absence.

To dig deeper, KYC has also become a tool for governments to Counter the Financing of Terrorism (CFT). In the US, for example, FinCEN coordinates AML/CFT priorities, which are the basis for KYC requirements.

Many of the guidelines for KYC implementations around the world utilize recommendations set by the Financial Action Task Force (FATF), a multinational body created in 1989 by G-7 countries with a shared interest in combating money laundering and terrorist financing.

Most centralized cryptocurrency exchanges now require identity verification before you can transact on the platform. Others may require KYC to perform transactions above a certain threshold. A much smaller group of centralized crypto exchanges, often in jurisdictions with lax regulation, do not require KYC identity verification.