What is KYC and why is it important for digital asset management?

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KYC stands for “Know Your Customer”, the term was created to name a common regulatory requirement, which all financial services providers are required to comply with.

KYC is about checks that primarily combat money laundering and financing of illegal activities. This regulatory measure is proving critical as a security tool, especially in the cryptocurrency industry.

What is KYC?

KYC requires all financial services providers to collect information to verify the identity of their customers, that is, if you have already opened an account with a cryptocurrency broker, for example, you have certainly already performed this verification.

This verification is usually done through an approach during the registration process, before the customer can carry out any transactions. Some companies allow accounts to be registered without completing the KYC, but with limited functions.

For the KYC to be carried out, it is common to request official identification documents, such as identity document, national driver’s license or passport, but confirmation of fiscal residence is also required, so it will be necessary to inform, at some stage, your location or address.

All information is critical for KYC’s policies to help fight money laundering, terrorist financing, fraud and illicit transfers of funds.

As criptomoedas podem substituir o dinheiro?

The importance of KYC in the cryptocurrency industry

The universe of cryptocurrencies is frequently used for money laundering, tax evasion and other illegal activities, the use of a regulation for cryptocurrencies guarantees an improvement in its reputation, as well as that the amounts are paid according to the law.

That’s why governments and regulators require brokers to complete KYC checks for their clients.

Considering the high degree of anonymity provided by cryptocurrencies and its decentralized nature, this tool is essential to increase security and reliability within the crypto market, after all, transactions carried out within the blockchain are irreversible and there is no administrator to help you.

KYC is about more than just taking the time to set up an account, it has significant impacts on maintaining the security of funds and fighting crime.

What are the benefits?

In addition to fighting illegal activities, KYC is able to improve the financial system as a whole, let’s look at some examples:

  • It facilitates the assessment of creditors, establishing the identity and financial history of clients, providing for more responsible risk management.
  • Fights identity spoofing and other financial fraud.
  • It helps improve the security and accountability of financial service providers, which increases customer confidence, which in turn encourages industry advancement.

KYC verification processes may seem bureaucratic, but it is essential for the user’s security, allowing not only the fight against frauds and financial crimes, but that their negotiations take place with more security and confidence.

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