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What is KYC? Why Should ICO Comply with KYC/AML?

BlockChain Expert 14/August/2018

2017 has been the time for ICO - A new creative type of financing that includes issuing of a new digital token to early investors and speculators on a blockchain-based platform for trade in return of Bitcoin or Ether.


Since the beginning of the year, ICOs have brought over $2 billion up in financing. This outperformed the sum, raised for more conventional VC funding of bitcoin and blockchain new companies.


The laws change fundamentally by the nation. A few nations like China and South Korea have already restricted ICOs. Others are pondering on whether a token sale constitutes a security and this clearly relies upon the kind of token sale.


Shockingly, many growing business entrepreneurs, don’t consider the ICO. Besides, the regulators have an honest reason to prevent money laundering and corruption while securing its investors. Now we're seeing that ICOs are increasingly picking to follow KYC (Know Your Customer) and AML (Anti Money Laundering) necessities amid a token deal — even though they're not made compulsory and mandatory to conduct.


ICO are the most trending pattern in cryptocurrency today. They enable startups to raise fund without having partners and stakeholders to follow and supervise closely on spending and organizing money related return.


More ICOs are picking to agree to Know Your Customer and Anti-Money Laundering controls to reveal more transparency and connect more trust with doubtful speculators. 


What is KYC?


KYC remains for Know Your Customer.


In the event that you take part in cryptocurrencies as a money service business, you must know and follow KYC. For eg., if you are planning about starting an exchange, or an ICO, you are bound to abide by the KYC prerequisites.


Some of the advantages are as follows:


Build up Credibility with banks- Banks seems to be friendly with a token sale as long as Know Your Customers laws are put into effect. Voluntary compliance in a token sale gives the project a green flag of legitimacy.


Go beyond the compliance curve-  Regulatory bodies in several giant markets, together with the U.S. and U.K. are learning towards classifying ICOs as security. Assembling hardly any information on investors such as names, email address and/ IP address wouldn't be adequate to fulfill this Know Your Customer(KYC) obligation.


Permanent Legitimacy- Voluntary compliance offers a solid signal to the market on how well your crypto-asset and its governance contract are outlined and protected.


Enhanced Public  Perception- As ICOs are subject to voluntary KYC/AML compliance, it ends up less demanding to differentiate legal project from dirty tricks and scams.


Extended Reach- Voluntary KYC/AML compliance will encourage ICOs to achieve a substantial number of audience and expand the number of jurisdiction which they'll participate, in spite of the fact that it implies that achieving an arrangement of approved and authorized investors.


Post Funding Tracking- By consolidating AML and KYC processes into your token sale, issuing an ICO can readily track and contact with investors after the initial coin offering and guarantee future compliance.


Stay away from Regulatory Fine - In some jurisdiction, non-compliance can mean huge fine. 


The most effective method to comply with KYC/AML are:


Forward-thinking issuing organization are leveraging innovation and technology and also online verification solution to meet these prerequisites to:


>confirm and validate the investors.

>comprehend the customer's profile, business and record activity.

>recognize relevant adverse information and risk.

>survey the potential for money laundering and/ terrorist financing to support actionable decisions to alleviate against financial, regulatory and reputational risk.


ICO AND IDENTITY VERIFICATION


Bringing identity verification into the token distribution workflow usually involves a combination of-


ID Verification- determine if any identity document(passport, ID card or driver’s license) is authentic and belongs to the user.


Identity Verification- Ensure the person behind a transaction is “present” and whom they say they are. This involves biometric facial recognition and lives detection to compare a selfie to the picture on the ID supplied.


Document Verification- Capture. Extract and verify data from supporting documents such as utility and bank statements as an additional layer of identity proofing needed to know the true identity of your investors.

 

There are real consequences and risks of non-compliance though they may not be readily apparent. Despite disclaimers from the ISO issuers in their white paper or on their websites that “they are not issuing a financial instrument” or “the token sale is not subject to any laws”, regulators may disagree if your token behaves like a duck.


By embedding AML/KYC compliance checks, it’s far easier to identify your investors and for investors to disclose their accredited status — providing an added layer of transparency that any would-be investor appreciates.


But, these simple steps also serve to better document the source of capital flowing in from a token sale. It’s inevitable that bigger, more institutional investors will have concerns about criminal money and will want some assurances. It just doesn’t cut it to block certain territories from an ICO since IP addresses can be easily spoofed.


There’s a lot of noise and a lot of scammers competing for our mind share and wallet share. Adding identity verification to a token sale is increasingly becoming a no-brainer for protecting your investors, increasing your credibility, and attracting bigger money.