Understanding KYC Requirements for Crypto Businesses

Understanding KYC Requirements for Crypto Businesses

You have probably noticed that the crypto industry has been growing like crazy lately. More and more people are jumping on the bandwagon and investing their money in various digital currencies.

But with great opportunities come some challenges, too. Unfortunately, some sneaky folks out there have been using the crypto space for not-so-great activities like money laundering, fraud, and even financing terrorism. That is where KYC requirements come in to save the day and help keep the industry safe and secure for everyone involved.

In this article, we will explore what KYC in crypto is and the primary KYC requirements for crypto businesses and dive deeper into the advantages and disadvantages of implementing KYC regulations for crypto businesses. But firstly, let us start with the essence - what is KYC?

What is KYC?

KYC or Know Your Customer is a set of identification and verification processes that crypto exchanges and other financial institutions implement to authenticate their customers’ identities. In simple terms, KYC in crypto means checking who the users are.

KYC aims to thwart fraudulent actions, money laundering, and additional illicit activities within the crypto sector. Moreover, KYC aids crypto exchanges in adhering to Anti-Money Laundering (AML) and counter-terrorism financing (CTF) regulations.

The primary objective of KYC is to ensure the legitimacy of all customers and their non-involvement in criminal activities. By confirming their customers’ identities, cryptocurrency exchanges can establish a secure environment for users to trade digital assets without concerns about security breaches or financial crimes. Consequently, KYC safeguards users from possible risks and scams, boosting their trust and confidence in the platform.

How does a typical KYC process look like?

The KYC process typically involves 4 steps to verify the user’s identity. Here is a simplified overview of how it generally looks:

  1. Registration. The user creates an account on the platform, providing basic information like Name, Email Address, and Password.
  2. Identity verification. The user digitally submits proof of identity, such as a passport, driver’s license, or national ID card. Some platforms may also ask for a selfie with the ID to confirm the user’s identity.
  3. Additional verification (if required). In some cases, the platform may ask for more information, like a tax identification number, proof of income, or source of funds.
  4. Automated verification approval. Advanced algorithms and artificial intelligence (AI) systems review the submitted documents and information. If everything is ok, the user’s account is approved. The verification approval can be done by a compliance team as well.

The exact KYC process can vary depending on KYC solutions and specific regulatory requirements.

KYC requirements for crypto businesses

KYC standards for crypto businesses are essential procedures to ensure compliance, maintain transparency, and prevent illicit activities within the industry. To elaborate further on KYC requirements, it is important to note that they vary depending on the type of business, local regulations, and the risk level of customers.

Identifying and verifying customers

To comply with KYC requirements, crypto businesses must collect and verify certain customer information. This information includes:

  • Customer’s first and last name;
  • Date of birth;
  • Billing address;
  • Identification documents (a passport or driver’s license).

In addition to collecting this information, crypto businesses must verify its authenticity. This can be done through various methods, including conducting a facial recognition check, verifying the authenticity of the identification document, or cross-checking the information against various databases.

Risk-based approach to KYC

This approach to KYC evaluates the risk level of each customer by considering factors like transaction history, source of funds, and jurisdiction. This enables businesses to customize their due diligence and monitoring efforts according to each customer’s specific risk level.

The underlying principle of this approach is that customers present varying levels of risk. Some users may pose a higher risk due to their involvement in certain industries, while others may have a history of suspicious transactions or involvement in criminal activities.

To employ a risk-based approach to KYC, crypto businesses first conduct risk assessments for their customers and transactions. This involves analyzing factors such as transaction type, geographic location, and transaction history.

Based on these assessments, businesses can identify the appropriate level of due diligence needed for each customer. This may involve additional verification checks, requesting supplementary documentation, or conducting enhanced due diligence (EDD) for high-risk users.

Ongoing monitoring and record-keeping

Both processes ensure that businesses are on the up and up with their regulatory duties and can spot any fishy or shady behavior that might crop up.

Ongoing monitoring involves the continuous monitoring of user’s transactions and activity to identify any unusual or suspicious behavior. This may include monitoring for patterns of activity that indicate money laundering or terrorist financing, such as multiple transactions below reporting thresholds or transactions involving high-risk jurisdictions or counterparties.

To implement ongoing monitoring, crypto businesses may use various tools and techniques, including transaction monitoring systems, risk-based alerts, and manual review processes. These tools enable businesses to detect suspicious activity in real-time and take appropriate action to mitigate risks.

In addition to ongoing monitoring, record-keeping is also an important part of KYC requirements for crypto businesses. Businesses must maintain accurate and up-to-date customer information records, including identification documents, transaction history, and any other relevant data.

Record-keeping is essential for enabling businesses to comply with regulatory obligations and demonstrate compliance to regulators if required. It also provides a valuable source of information that can be used to identify and investigate suspicious activity and to support law enforcement investigations if necessary.

To ensure effective record-keeping, crypto businesses should establish clear policies and procedures for collecting, retaining, and storing customer data. They should also regularly review and update their record-keeping practices to ensure they are in line with regulatory requirements and industry best practices.

Pros and cons of KYC regulations for crypto businesses

Advantages of KYC

There are several advantages of KYC regulations for crypto businesses. Here are some of the most significant:

  • Compliance with regulations. Legal crypto businesses are required by law to implement KYC to prevent money laundering and other illicit activities. By complying with these regulations, businesses can avoid legal problems and maintain their reputation. In 2022, banks and other financial institutions faced more than $4 billion in fines due to infringements related to AML regulations, sanctions violations, and failure in their KYC systems.
  • Enhanced security. KYC regulations help ensure that only legitimate users are able to access the platform. This reduces the risk of fraud, hacking, and other security threats, which helps to protect both the business and its customers.
  • Improved customer trust. By verifying the identity of users, crypto businesses can demonstrate their commitment to safety and security, which helps to build trust with their customers. This, in turn, can help attract and retain customers over the long term.
  • Better risk management. KYC regulations help businesses to identify and mitigate risks associated with their customers, such as the risk of fraud or money laundering. By managing these risks effectively, businesses can reduce the likelihood of financial losses and reputational damage.
  • Increased operational efficiency. By automating the KYC process, crypto businesses can optimize their operations and reduce the need for manual processes. This can save time and resources, which can be used to focus on other areas of the business.

Disadvantages of KYC

While KYC regulations can provide several advantages for crypto businesses, there are also some potential disadvantages to consider. Here are some of the most common ones:

  • Time-consuming. The KYC process can be time-consuming and may require additional resources, such as staff and technology, to manage. This can lead to delays in onboarding new customers and impact overall business efficiency. In numerous financial institutions, the KYC screening process required for customers to open a new account typically takes more than 18 minutes on average.
  • Costly. Implementing and maintaining a KYC program can be expensive for crypto businesses. They may need to invest in technology, hire additional staff, or outsource the process to a third-party provider.
  • Barriers to entry. The KYC process may deter some potential customers from using the platform if they are hesitant to provide personal information. The primary reasons for this hesitation are privacy concerns and a lack of trust in the platform. This can limit the user base and impact business growth.
  • Risk of data breaches. Collecting and storing personal information for KYC purposes increases the risk of data breaches. This can put users’ personal information at risk and damage the business’s reputation.
  • Compliance challenges. KYC regulations can be complex and require ongoing monitoring to ensure compliance. Failure to comply with regulations can lead to significant penalties, legal issues, and reputational damage.

Utorg makes onboarding easier

At Utorg, we understand the importance of maintaining a safe and secure crypto industry. That is why we are offering our crypto on-/off-ramp solution with an AI-powered, automated KYC module to your crypto business, completely free of cost.

By following all the requirements, our solution will not only help your business comply with KYC regulations but also enhance the customer experience by reducing wait times and streamlining the entire process. By integrating our payment gateway, your business will be providing users with a fast, efficient, and easy-to-use platform that is tailored to meet their needs.

What is more, after the costless integration of our crypto on-/off-ramp widget into your product, your users in 175 countries can enjoy the following benefits and:

  • Buy crypto with 26+ local fiat currencies;
  • Pay with 13+ payment methods, including Google Pay and Apple Pay;
  • Complete identity verification within 3 minutes (6 times less than the average time).

So, if you want to make your crypto business a safer and more secure space for everyone involved, we invite you to integrate our solution into your product at no cost. Let us work together to prevent illegal activities such as money laundering, fraud, and financing terrorism while enhancing the customer experience.


1. What is KYC in crypto?

KYC in crypto is the process of verifying the identity of customers to prevent fraud, money laundering, and other illegal activities. It involves collecting personal information, assessing risk, monitoring transactions, and reporting suspicious activity.

2. Why do crypto companies need KYC?

Crypto companies need KYC (Know Your Customer) to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, prevent fraud and other illegal activities, and ensure the safety and security of their customers. KYC involves verifying the identity of customers, assessing risk, monitoring transactions, and reporting suspicious activity.

3. Can I buy crypto without KYC?

No, it is not possible to buy crypto without KYC verification on a licensed VASP (Virtual Asset Service Provider). VASPs are required to comply with AML and CTF regulations, which include KYC requirements. Therefore, reputable licensed VASPs will ask for KYC verification before allowing customers to buy or sell cryptocurrencies on their platform.

4. Is KYC mandatory for crypto?

Yes, KYC is mandatory for crypto businesses in many jurisdictions around the world, as part of efforts to combat financial crime such as money laundering, terrorism financing, and fraud. Failure to comply with KYC requirements can result in legal and financial consequences for businesses.