Compliances: Adhering to KYC and AML norms is as essential as breathing in Oxygen?

Backdrop

Over the last three to five years, there has been a significant rise in the crypto exchanges and wallets around the globe, driving immense liquidity with volumes, attracting new customers onto the platforms, and creating new altcoins, exchanges, and framing policies alongside.

Blockchain is a free and decentralized network with a minimalistic presence of authorities currently. Cryptocurrency and its likes (altcoins, Defi) reside on this network, enabling the users to access the technology in its essence. Unlike the traditional financial institutions, blockchain technology is not in the purview of the government or regulatory’s tracking. This provides the users of blockchain technology an ability to hide the nature and flow of transactions.

THE NECESSITY for the compliance requirements

With the mounting pressures and the tightening policies from regulatory authorities to curb money laundering, exchanges and wallets have become forced to comply with the KYC norms for the users to come onboard and transact using their platforms, i.e., to buy and sell, and withdraw monies from the platform to their bank accounts.

According to Chainalysis Report, “the value of illicit transactions surged in 2021 from $7.8 billion the year before; these nefarious transactions accounted for 0.15% of crypto volume last year, down from 0.62% in 2020”. Since 2017, cybercriminals have laundered almost $33 Bn.

Recently, Cardano curators decided to advance with the compliance of the $ADA token for ALM. In one of the statements issued by Coinfirm, “Coinfirm will provide Cardano AML/CFT analytics for all of the assets minted on the Cardano blockchain. This will apply to both assets already minted before the partnership and future assets. This will enable law enforcement agencies to track down illegal activities carried out on the blockchain by bad actors”.

The $ADA token has taken an upfront move while the others remain sceptical about confirming their acceptance and being part of the regulatory system.

Conclusion

As the decentralized networks start feeling pressured to be monitored and adhere to the norms of KYC and AML, it is inevitable for them to strive away otherwise when they need to be a part of the system globally. Although this breaks the very foundation of a decentralized network, it becomes a challenging task for the exchanges and the system to find a common practice to fix the loopholes of the chain if they ought to remain independent and free from regulatory hassles. Otherwise, failing wider KYC and AML compliance programmes in the crypto market is inevitable.

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