Digital currency platforms have got a significant dominance in the past few years. Bitcoin is the most popular cryptocurrency platform that has gain ground in digital currency services. A decentralized system for digital currency, bitcoin has marked a $300 billion records in the last two years from $50 billion. The reason is a public interest in buying bitcoins, making investments and gaining more through it. But, there are some challenges associated with the decentralized pattern of blockchain technology.
The regulators across the world are stringent with respect to the evaluation it is done to check the security measures and analysis of complex blockchain infrastructure. Regulatory scrutiny is important to make sure that the operations take place fairly, evenly and securely. Moreover to check that the financial branch in the form of blockchain technology is not facilitating financial criminals such as money laundering and terrorist financing.
How digital currency services relate financial sector?
Just the ways financial institutions such as banks, insurance companies, charity organizations and loan/investment institutes used to perform due diligence, digital currency providers are required to do the same. This is done on customers to check their credibility and risk rating to keep them in the financial system. In these financial institutions, proof of identity is required in the form of documents. Document verification is done to identify the individual and verify its real identity.
The digital world faces the same issue which is even more when it comes to the identification of an online user. The cryptocurrency industry and other Fintech initiatives work online in which identity verification should be done to ensure a clean customer base. Crypto businesses are therefore performing digital document verification of customers. By employing the algorithms of Artificial Intelligence and machine learning, the documents of customers are verified digitally. The document could be an ID card, passport, credit/debit card or a driving license.
Identity Verification – Regulatory Obligation
The crypto industry is one of the most suspicious financial niches that are prone to major financial crimes such as money laundering and terrorist financing. The blockchain infrastructure is so complex that it often gets hard to decipher the individuals’ details in less time. The customer data is hidden in a well-cryptographic environment which does not reveal the identity of an individual. This complex structure opens ways for financial criminals to misuse the systems and make transactions across the world.
Therefore, regulatory authorities across the world are vigilant with respect to examination and evaluation of identity verification measures. The crypto industry needs to onboard customers after verifying them against their documents and other pieces of evidence for identity proofing. Know Your Customer (KYC) and Anti-money Laundering (AML) regulations are in place to verify each onboarding identity to make sure that it has not been involved in any criminal activity before and does not contain the name in the global watchlists and sanctions lists. Digital document verification measures include all these requirements that go well with regulatory obligations.
Companies are introducing digital currency services and projects due to which regulatory scrutiny is getting stringent across the globe. All countries are evaluated after a certain time span and rating is assigned against them. Some countries are greylisted if they lack some important measures, some pass it and some are labeled as a blacklist if they do not have any financial security measures in place.
KYC/AML compliance and identity proofing
KYC and AML compliance are the two major regulatory obligations to which every financial institute needs to adhere firmly. In case of any discrepancy in compliance, the regulators have imposed huge fines and penalties for financial businesses. For identity proofing of each individual participating in the financial system, documentation verification can be performed. The identity verification of each individual should be done online to verify the identity and to mitigate the risk of fraud and financial crimes. Digital currency services providers should ensure identity verification measures strongly to ensures a clean customer onboarding and to combat the risk of fraud in the system.