As crypto assets are traded by millions of users around the world, the need for crypto customer protection has increased. Crypto compliance refers to standards and requirements that crypto companies have to meet to prevent financial risks and crimes while enhancing security and trust.
For instance, in 2021, the Financial Action Task Force (FATF) updated its Global Recommendations for Virtual Asset Service Providers (VASPs) while in the European Union, the Markets in Crypto-Assets (MICA) regulation will come into force by the end of 2024.
All these recommendations (FATF) and legal requirements (MICA) advocate for a better assessment of customers and stakeholders’ trustworthiness in favour of a better fight of money laundering and terrorist financing (AML-CFT)
The Know Your Customer (KYC) process is part of AML-CFT compliance requirements and refers to the verification of the identity and reputation of a new crypto customer. It involves gathering and verifying customer identification data, including personal identification documents, proof of address, and other relevant information
The FATF’s Recommendation 16 (also known as ‘Travel Rule’) requires Virtual Asset Service Providers (VASPs) to collect and share the personal information of both the sender and the recipient of transactions equalling or above 1000 USD/EUR.
In the European Union, under the Markets in Crypto-Assets (MICA) regulation, all regulated Crypto-Asset Service Providers (CASP) will have to perform KYC to identify, verify and securely share customer data.
Even in the non-regulated Decentralized Finance (DeFi) space, where KYC can be a challenge due to the anonymous DNA of this ecosystem, we promote privacy-preserving proofs of compliance thanks to zero-knowledge proofs (ZKP).
The Markets in Crypto-Assets Regulation (MiCA) establishes a unique regulatory framework for Crypto Asset Service Providers (CASPs) operating in the European Union. These CASPs will have to meet several requirements and obtain authorisation (mandatory licence) to be allowed to provide services in the EU.
MICA reinforces the combating money laundering and terrorist financing (AML/CFT) mechanisms, systems and procedures for CASPs, but also sets the bar higher in terms of prudential rules, safeguarding processes, business conduct and reporting requirements to ensure financial stability, consumer protection and market integrity.
In the European Union, MICA regulation will apply to all CASPs providing one or more of these crypto-asset services to customers on a professional basis:
• The custody and administration of crypto-assets on behalf of clients;
• The operation of a trading platform for crypto-assets;
• The exchange of crypto-assets for funds;
• The exchange of crypto-assets for other crypto-assets;
• The execution of orders for crypto-assets on behalf of third parties;
• The placing of crypto-assets;
• The reception and transmission of orders for crypto-assets on behalf of third parties;
• Providing advice on crypto-assets;
• Providing portfolio management on crypto-assets;
• Providing transfer services for crypto-assets on behalf of third parties;