KYC is short for "know your customer" or "know your client" which is a process that is the duty of an agency or institution to carry out an identity and background check of its customers before allowing them to use the platform's services or products.
It is part of the measures used by regulators to prevent illegal activities such as methods often used by financial institutions and banks.
KYC is able to work with the crypto market through customer identity verification by crypto exchange platforms that aim to avoid money laundering, terrorist financing and tax evasion activities.
Additionally, most crypto exchange platforms do not allow their customers to make cryptocurrency purchases or fund withdrawals until their identity is verified. Each platform will handle KYC differently.
Therefore, it is customary during the KYC process for customers to be required to upload self-verification documents such as identity cards, driving licenses, utility bills or financial statements. There are even platforms that require customers to upload a selfie as well as some additional information for a stronger identity verification process.
After the identity is successfully verified, only then can the customer enjoy access to the services in the platform.
The Financial Action Task Force (FATF) also recommends crypto exchange platforms to use a risk-based approach to crypto KYC compliance.
This means that low-risk customers will face a simpler process, while higher-risk customers will require a more intensive crypto KYC compliance process.
In line with this, implementing a KYC process can provide crypto exchange firms with a proper understanding of their customers and their financial affairs.
In addition, crypto exchange platforms can easily monitor customer activity and avoid any risk.
