The Importance of Business Verification (KYB) for the Crypto Industry in 2023

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Cryptocurrency is still on fire in 2023. As of April 2023, there were more than 11,000 different cryptocurrencies worldwide, showing significant growth in just two years. Since June 2020, Ethereum has seen over a million daily transactions, with no signs of slowing down. With increasing consumer adoption, over 25,000 companies accept cryptocurrency payments worldwide and there are over 500 million crypto owners globally. The demand for crypto has also led to the emergence of new exchanges, with Binance still the largest, transacting over $35 billion in a single day in April 2023.

The challenges of client introduction in today’s business landscape

The rise in interest in cryptocurrency is not without its challenges. The massive influx of new crypto buyers has created significant pressure on the exchanges. In high market periods, several major exchanges have had to pause new user registrations to catch up with demand. While some exchanges manage to scale up over time, they are less likely to have to pick up some of the slack. However, the problem of slow boarding persists.​​

Contrary to popular belief, the crypto market is not just for individuals. Companies are also increasingly entering the crypto industry to enable customer payments and business-to-business transactions. Major players, such as Binance, allow businesses to create accounts. However, the process of opening a business account is even more demanding, and requires a comprehensive set of documents which must be uploaded and verified, such as the certificate of incorporation, articles of association, articles of association, a list of shareholders and directors, extracts from company registers, completed questionnaires and personal identification for partners, owners and dealers. Companies may have to wait weeks or even months for confirmation, causing them to miss out on potential opportunities in the hot market. The

The pressure of onboarding new businesses in the crypto industry is related to getting as many customers on board as quickly as possible, while organizations are thoroughly vetted to prevent fraud, money laundering or other criminal activities. Many companies realize that if they do not adequately curtail illegal activity through rigorous onboarding processes, regulators may intervene. In many cases they have already done so.

AML in the cryptocurrency industry

Money laundering is an ongoing problem, but the rise of cryptocurrency has made it even more challenging to combat. Cryptocurrency transactions are cheap, fast and provide anonymity, which makes them attractive to those who want to launder money.

Criminals, individuals and organizations have turned to crypto as a payment method for illegal activities such as money laundering and terrorist financing. This has led to the development of a commonly used five-stage money laundering model, which is illustrated in the image below.

The standard model for money laundering of cryptocurrencies.

Regulatory agencies continue to closely monitor the interest of crypto launderers as the industry grows. In the United States, the Anti-Money Laundering Act of 2020 has given regulators increased authority over non-compliant cryptocurrency exchanges, such as verifying the identity of customers conducting transactions exceeding $10,000 and maintaining records and filing reports of such transactions. The European Union (EU) has implemented several regulations to combat money laundering, the latest being the Sixth Anti-Money Laundering Directive (6AMLD), updated in 2022. Financial Action Task Force (FATF), a global money laundering watchdog and terrorism financing, have also established international standards that include guidelines for crypto.

The importance of AML compliance in the crypto industry

The updated regulations in the crypto industry have given rise to two processes to identify individuals and businesses involved in crypto. Know your customer (KYC) is used to confirm the identity of individuals in accordance with the regulations. In contrast, Know Your Business processes (KYB) confirm the identity of a business as a whole. Robust KYB processes are essential to protect a company’s assets, reputation and reduce the risk of unwitting participation in illegal activities such as money laundering. Ignoring the KYB can lead to financial loss, negative reputational impact and even legal consequences.​​

In light of increased compliance monitoring and the rise of online fraud during the COVID-19 pandemic, companies working with crypto must comply with the updated rules. Failure to implement adequate KYC, KYB, and AML processes can result in loss of crypto licenses, fines, and jail time.

Therefore, it is important to balance the need for KYB processes to reduce liability and ensure regulatory compliance with the need to onboard new businesses. Manual approaches are often time-consuming and may not catch all issues or avoid fraud or AML breaches. Fortunately, AI-driven solutions such as Vespia can streamline the verification process, making it faster, easier and more efficient.

Automation of KYB and AML Compliance for Crypto

In the crypto industry, outdated and ineffective onboarding procedures can lead to legal, financial and regulatory issues that companies cannot afford to face. Manual approaches take too long, leading to delays and lost opportunities, as seen in the case of Binance. The pressure of these delays can tempt companies to overlook critical details and take shortcuts, exposing them to even more risk.

To avoid these risks, automated solutions are needed to ensure efficient and compliant KYB processes. Vespia has recognized this need and has developed a new way of operating KYB in the crypto industry.

A comparison of Vespia’s Crypto User Onboarding Vision and traditional approaches

Money laundering is a significant problem, especially in the relatively new cryptocurrency market, but it is difficult to estimate the actual extent due to the nature of the activity. However, it is believed that money laundering involves as much as $1.5 trillion worldwide each year, and a large portion of that goes through crypto exchanges. Therefore, businesses cannot afford to ignore the issue and fortunately, the latest technology allows them to address their KYB needs quickly and easily while complying with the latest AML regulations.

This results in faster onboarding and reduced risk of regulatory issues or exposure to fraud and other illegal activities. Vespia is committed to being part of this change and introducing a new standard for business verification. To try Vespia, please request a demo here.