At first glance, Know Your Customer checks and Anti-Money Laundering measures can seem incredibly cumbersome for crypto enthusiasts. But look deeper, and the importance of such regulations becomes incredibly clear.
EXMO, a crypto exchange based in the United Kingdom, says consumers aren’t often aware of what goes on behind the scenes at a trading platform — and argues that it’s in a trader’s best interests to select a company that follows rules to the letter.
The company pointed to how 70% of virtual currency companies in Estonia, long seen as one of the most crypto-friendly countries in the European Union, have had their licenses to operate revoked over the course of 2020.
According to EXMO, the risk of non-compliant exchanges being abruptly shut down is “increasingly high” — and in some cases, affected users may face a long wait before they get their digital assets back… or not at all if they failed to complete verification procedures.
In recent years, the exchange has registered with the U.S. Financial Crimes Enforcement Network, and has devised KYC and AML policies that are designed to comply with regulatory requirements in dozens of countries. The U.K.’s Financial Conduct Authority also recently put EXMO on the list for temporary registration.
The benefits of regulation
EXMO — which boasts 181 currency pairs, a dedicated over-the-counter desk for large trades and support for cross-platform trading bots — says there are a number of benefits to regulatory compliance that cryptocurrency owners may not have previously considered.
Given how there are only 21 million BTC in existence, there can be a risk that law-abiding traders could end up acquiring crypto that was previously used for criminal purposes. On unregulated exchanges, this could result in user wallets being slapped with a high-risk score without their knowledge — and could make it harder to withdraw assets in the long run.
Regulation and the monitoring of transactions can also help stop audacious hacks in their tracks, and ensure stolen funds are returned to their rightful owners. According to EXMO, its AML screening measures sprang into action when 662,000 EOS that was stolen in the 2019 Bithumb hack were transferred to its wallets. The crypto was successfully transferred back to the victims, with the company adding: “With no regulation, stolen EOS worth $2 million would have been successfully withdrawn.”
Over time, this could help prevent a reprise of the Mt. Gox scandal, where a total of 850,000 BTC was stolen in 2014. A draft rehabilitation plan shows that just 140,000 BTC is going to be distributed to victims — almost seven years after the notorious attack. EXMO believes that regulation does far more than prevent money laundering and terrorist financing — it protects honest traders from scam activity.
Why are traders afraid of KYC?
Given how digital assets are finally being treated seriously by financial firms and Wall Street, EXMO argues that regulation is a crucial step in helping the crypto sector achieve equality with traditional financial institutions.
The exchange claims that it saw a substantial rise in withdrawals shortly before KYC and AML measures were brought into force, prompting the company to conduct a survey among 1,529 traders to ask what concerns them most about these screening procedures.
EXMO’s poll suggested that 76% of respondents were afraid that their documents would end up in the wrong hands, 91% said they feel uncomfortable when they are contacted on behalf of an exchange and asked to prove the origin of their funds, and 11% said they simply didn’t like how time consuming these procedures often are. The company says it has moved to allay security concerns by watermarking documents so they are impossible to reuse in the future.
With discussions about regulation set to heat up in the coming months, the platform hopes the crypto community will begin to see these measures as a positive rather than a negative.
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