Combating Financial Crimes in Crypto Trading with ID Verification Solutions
Since its emergence, the digital currency market has come a long way from serving as a safe haven for money launderers to achieving status of the global economy’s mainstream segment. Depending on customer requirements, crypto exchanges provide several features such as digital wallets, additional levels of security, and anonymous transactions. On the contrary, these features are becoming a source of attraction for criminals.
Fraudsters use synthetic identities to onboard crypto trading platforms and launder high sums of money. With over 9000 coins in the market, it is becoming challenging for online exchanges to identify illicit activities. However, by integrating advanced ID verification solutions, crypto trading sites can validate customers. This blog covers reasons why identity authentication is necessary for ensuring secure investments in tokens.
An Overview of the Liable Checks List for Crypto Exchanges
The increasing shift from paper money to digital currencies is attracting criminals. They employ several techniques to reap financial benefits. By using synthetic identity fraud, criminals create fake accounts and use them later for investing their proceeds of crime within the crypto market. Keeping this in view, regulatory bodies such as the EU, FATF, FINTRAC, and others are placing strict regulations in place.
Due to the high chances of money laundering, crypto-trading scams, payment fraud, and terrorism funding, this industry is undergoing tough legal scrutiny. Therefore, identity authentication, Customer Due Diligence (CDD), cross-identification across watchlists, and ongoing monitoring have become legal obligations for online crypto exchanges. Further details regarding the ID verification process are in the next section;
Customer Identification Program (CIP)
The first step in the Know Your Customer (KYC) process is the straightforward collection and verification of users’ information. Here the system presents an online form during the onboarding. Customers fill in their confidential details including name, date of birth, address, and others. The system then runs identity authentication checks to validate the data.
In the case of banks, CIP comes prior to registration, whereas, during onboarding on crypto exchanges, customers undergo these validation checks after it. However, in less regulated financial institutions, criminals easily bypass these scans by committing identity theft.
Customer Due Diligence (CDD)
Soon after the system fetches results regarding information authenticity, the AI-powered identity verification system takes customers to the next step. This involves risk assessment of users by scanning them across sanctions and watchlists. Furthermore, crypto exchanges can also validate the sources of funds by digging into the background of customers. This way, ID verification enables online trading platforms to mitigate the risk of money laundering.
Continuous Monitoring of Activities
After successful onboarding, crypto exchanges need to keep tabs on their customers. Fraudsters use counterfeit identities to register on platforms that help them steer clear of identification and ID verification regulatory checks. Therefore, it is crucial for crypto exchanges to monitor transactions and the overall financial activities of customers to detect suspiciousness.
As per regulatory standards, online platforms should report payments that exceed the thresholds, abnormal withdrawals, or investments of huge amounts of money to respective authorities. For this, they require identity verification services to stay one step ahead of fraudsters.
Identity Theft Protection – The Way Forward to Secure Crypto Trading
Most crypto exchanges are decentralized, which means they do not come under the direct supervision of a single regulatory authority. As they use blockchain technology, details regarding transactions as well as purchases are not stored on a single database. However, a network of global computers also known as a ledger holds confidential information. This makes the identity verification of customers more crucial for crypto exchanges.
The involvement of anonymity is another appealing feature where customers can keep their original identities hidden while making payments. However, this benefit has been opening doors to fraudsters, especially money launderers. By using stolen or synthetic information, criminals easily bypass identity theft protection systems and exploit crypto trading platforms.
Regulatory authorities are centralizing crypto exchanges by requiring customers to provide their actual details. These are then kept under advanced security within databases to track users and ensure they are not making suspicious transactions.
AI-powered biometric identity verification systems are changing the crypto trading landscape by leveraging more advanced solutions. By deploying facial, voice, fingerprint, and iris/retina analysis, online exchanges can better identify imposters. Likewise, liveness detection ensures the presence of customers which makes ID verification more accurate and reliable.
In the End
In order to stay put with the KYC/AML legal requirements, the crypto industry requires robust identity verification services. With their advanced AI-powered IDV tools, online exchanges can provide a secure and risk-free environment for both investments and trading in digital tokens. As the crypto industry is all set to mark tremendous growth, ID verification solutions are providing them with result-driving mechanisms to curb criminal activities.
