More than half of all cryptocurrency exchanges do not support identity verification, or they do it poorly

Oct 8, 2020 | News
More than half of all cryptocurrency exchanges do not support identity verification, or they do it poorly

According to data obtained from the analytical agency CipherTrace, more than half of all exchanges that work with cryptocurrencies either don't identify the user at all, or do it at an extremely low level. Insufficient by the standards of KYC/AML protocols. Surprisingly, the most serious violators in this regard were exchanges located in Europe, the United States and the United Kingdom.

More than 800 centralized, decentralized and automated exchanges and market makers were analyzed. And it turned out that 56 percent of them do not engage in user identification at all, despite international standards and regulations against money laundering (AML). And the largest number of such projects - about 60 percent - are located in Europe, a place known for its strict rules and meticulous regulation of everything and everyone.

Further, at about the same level are the United States, Great Britain and Russia. As for Singapore, the situation there is a little better - there are checks in most organizations. Only rather weak.

It was also found that many exchanges do not mention their country of location at all. Neither on our own website nor in terms of user agreements. This seems to be done on purpose, as 85 percent of such organizations don't have or have KYC protocol, but it's very weak. We can conclude that these exchanges purposefully hide their jurisdiction so that there is no need to register and comply with the AML rules.

The situation is even worse with decentralized exchanges. Among the 21 projects which were analyzed, 81 percent had poor user identification. However, this does not mean that money is laundered there. Even when hackers stole $ 7.9 million from the KuCoin platform and then sold them on decentralized exchanges, it still was not money laundering in the literal sense of the term.

According to Elliptic co-founder Tom Robinson, "Criminals don't use DEX to hide their tracks - they just sell their loot there."

However, we have to keep in mind, that projects of decentralized finance also sometimes “appropriate” the functions of classical banks, such as issuing loans and borrowings, or opening deposits in order to receive interest. Therefore, they may be subject to the same legal framework as traditional financial institutions.

“All these financial transactions are already regulated by various laws, including those dedicated to securities, loans and banking. And this is already inextricably linked with the AML/CTF norms, ”said SEC spokeswoman Valerie Szczepanik.

Dave Jevans, CEO of CipherTrace, believes that "from the state of affairs over the past few months, DeFi protocols basically don't want to interoperate with KYC protocols."

“Developers say they are just writing software that makes a profit. But at the same time - allegedly "they do not control it." But most of these platforms are run by companies with significant venture capital. " Jevans also added that he does not believe that DeFi projects will continue to be able to ignore the current rules.

However, nothing surprising. There are some reasons, why DeFi is positioned as the next step in the development of cryptocurrencies - even safer, less centralized and practically independent of external regulation. Plus the ability to use them from anywhere in the world, not paying much attention to the borders and local legislation. Another question is whether officials can somehow take this matter under their control? Or, at least, to offer a safer, more convenient and reliable alternative. In any case, the "genie from the bottle" has already been released and the development of the cryptocurrency space cannot be easily stopped.

Published on the EXBASE based on materials from