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Why KYC compliance is important for virtual assets dealers

Fraud is on the rise and unfortunately, businesses are still unable to fight these frauds with efficiency. One of the major reasons behind this is a lack of uniformity in the fraud prevention practices in businesses around the globe. This uniformity can be achieved with regulatory compliance because most of the KYC/AML regulations around the globe have the same laws and features. 

KYC compliance is becoming a vital ingredient of growth and retainable market value, which is difficult to achieve in the current scenario of fraud and crime. Businesses and banks are accepting the significance of KYC compliance and it has lead to an increasing trend of KYC and AML compliance. But this trend is flourishing in the virtual assets industry as well. This industry has a huge potential for growth and has a significant risk of financial crime, so future-oriented businesses are investing in KYC compliance. 

Let’s see what are the primary reasons behind an increased trend of KYC compliance among virtual assets businesses. 

Increased regulatory scrutiny

Now that the industry is growing rapidly bagging huge customer value, it’s vital to shelter this growth from fraudsters or the world might face an epidemic of financial crime channeled through this industry. Virtual assets are now brought under the scope of KYC and AML laws previously implemented on the financial institutions. It helps them to onboard only secure clientele. 

FATF recommended adding virtual assets dealers under the scope of AML/KYC laws implemented on financial institutions. EU’s 5AMLD also incorporated a clause to bring virtual assets dealers under the shelter of KYC laws. In the U.S three bills related to cryptocurrencies are in the pipeline that will bring this industry under the strict scrutiny of regulatory watchdogs. 

The Swiss regulatory authority has given banking certificates to two pure-play cryptocurrency banks. This initiative is taken to promote the rise and growth of Fintech in a secure environment. 

All these regulations and many others are implemented or in the pipeline to bring the virtual assets dealers under the regulatory radar. This has made KYC compliance inevitable for these businesses. Non-compliance will result in huge financial losses which may prove to be a killing blow for many businesses as most of the virtual assets dealers are startups as this industry is still new and immature to handle huge financial losses.

Increase in fraud

Everyone knows that in today’s digital world, fraud has increased but very few know that it is equally prevalent in businesses dealing with virtual assets. CipherTrace a crypto analytics firm found that cryptocurrency lost a staggering $4.4 billion in the first three quarters of 2019 due to fraud. This shows that the risk of fraud is quite high in the cryptocurrency and the only solution to fight this huge amount of fraud is to onboard only secure clientele. As the growth of fintech and decentralized cryptocurrencies has served the unbanked and increased the risk as well. KYC compliance will help virtual assets dealers to grow without the fear of fraud and crime prevailing in their society. 

Retainable growth

Virtual assets are used widely around the globe and the growth of this industry is predicted to be quite high. But this growth is possible if it retains the positive customer value in the future. If the fraud kept on increasing at this pace, the tarnished fame of virtual assets will be a hurdle in achieving and retaining the growth. KYC compliance will be an effective tool to fight fraud. 

KYC compliance is equally significant for virtual assets dealers. It ensures retainable growth, customer value and a bright future for the businesses. The trend of KYC compliance in this industry is still new but most of these businesses are investing in AI-based KYC screening solutions that go well with the speed and automation provided by cryptocurrencies. These solutions screen and verify the identity documents in real-time and if it’s powered with biometric authentication it verified the face of the person and matches it with the face on the identity document. Another benefit is these solutions are used 

So compliance could help virtual assets dealers in achieving numerous benefits such as compliant status, secure customer onboarding, fraud prevention, financial loss prevention, increased customer value, increased market value, etc.

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