Over the last decade, cryptocurrency has mastered incredible growth and is still on the rise with over 9000 tokens so far tossed into the market. Furthermore, due to pandemics financial institutions largely promoted digital banking. Where this advancement fuels the adoption of cryptocurrency, it is also paving the way for criminals. Easy access and decentralized nature of exchanges allow money launderers to circulate funds across different regions.
With authentic identity verification checks in place, cryptocurrency exchanges can restrict criminals from onboarding. The industry which was once considered secondary has now become a prime matter of concern for regulatory authorities. To efficiently fight financial crimes, the crypto industry needs to bring in synthetic identity fraud prevention mechanisms. Read on to know how digital ID verification solutions assure secure crypto-trading.
Challenges Crypto Industry Face While Ensuring KYC Compliance
Despite introducing preventive measures, cryptocurrency exchanges still face backlash as criminals are using advanced methods. With digital weapons at their disposal, fraudsters easily camouflage identities, hide sources of funds, and launder their ill-gotten money.
Therefore, regulatory bodies are enforcing strict KYC/AML regulations to prevent the crypto industry from becoming a medium for financial crimes. This is why exchanges, buyers, and sellers are in a constant uphill battle against criminals. More the challenges they face during ID verification are:
Variety of Fake IDs
Criminals are well aware of the techniques crypto exchanges use for identity theft protection. Therefore, they come up with advanced methods to dodge them. For instance, they bypass facial recognition by using 2D/3D masks, hide their UBOs by using fake information, use deepfake videos, and much more. This helps them steer clear of inefficient identity authentication checks and easily create a fake profile.
Balance Between Friction and Security
As crypto is a virtual and volatile currency, customers expect less friction while accessing markets. Therefore, if exchanges will put overly strict identity verification checks during onboarding, they will lose potential customers. As per Shufti Pro News, in case of inefficient validations, criminals can avail easy trading. Both ways, crypto exchanges will bear the loss.
Hard Choice – Traditional or Innovative Rules
Cryptocurrency is seen as an innovation in the financial industry and some experts suggest creating new policies for its regulation. On the contrary, regulatory bodies think otherwise and are enforcing the same rules as they do for other financial institutions. One among them is to prevent identity theft.
Therefore, crypto exchanges face a continuous struggle while ensuring a safe experience for customers through efficient ID verification and adhering to KYC regulations.
Identity Verification Services – Solutions to Increasing Problems
With the reign of cryptocurrencies, fraudsters are making sure they take every possible advantage. Simultaneously, regulatory bodies are strictly monitoring crypto exchanges to ensure they comply with identity verification rules. Know Your Customer (KYC) involves the validation of customers’ claims. It includes verification of information, documents, payment details, accounts, and funds sources.
The AI-powered biometric identity verification system further streamlines the crypto-trading process. With its tools like facial recognition, iris/retina scan, liveness detection, and fingerprint analysis, it provides an additional layer of security to the digital onboarding process.
Compliance with KYC Regulations
One of the major benefits that online solutions provide is guaranteed compliance with KYC regulations. In order to ensure the secure exchange of cryptocurrencies, regulatory authorities oblige platforms to guard their onboarding process. For this, they need to incorporate ID verification solutions. This will not only help them identify criminals but also mitigate the chances of hefty fines.
Validates Information Authentically
While regulatory bodies are enforcing strict rules, AI-powered identity authentication solutions are helping crypto exchanges ensure compliance with them. For instance, for document validation, OCR helps in easy data extraction. The system automates digital onboarding while cutting the hassle for both customers and platforms.
Moving on, the system asks customers to fill in information that defines their identity and upload documents that serve as supporting evidence. It then cross-match the information and identifies if the user behind the screen is a criminal. For more authenticity, the system verifies details against global databases, sanctions, and Politically Exposed Persons (PEPs) lists. This makes identity verification services a must-have for crypto exchanges.
Safeguards Decentralized Exchanges
Decentralized Exchanges (DEX) allow anonymous peer-to-peer trading. This makes it difficult to identify criminals and prevent money laundering. Due to fewer regulatory checks, fraudsters make use of these loopholes and convert their black money into white. It also helps them circulate their funds across various regions.
However, with authentic ID verification checks in place, decentralized exchanges can ensure secure crypto trading. The system validates customers and exchanges can use the verified identity to onboard legit customers.
Cryptocurrency is turning tables in the digital world with its services like online payments, e-trading, and east-to-store tokens. On the contrary, it has become the prime target for money launderers. Therefore, crypto exchanges require robust identity verification solutions to draw a line between criminals and legit customers. This will ultimately save them non-compliance costs and safeguard the overall trading process.