Are KYC and AML The Key To Bringing Back The Crypto Boom?
After the boom at the end of 2017, the cryptocurrency bubble has come crashing down to Earth. At its peak, the market valuation of cryptocurrencies or tokens reached more than $800 billion. Over the last two years, it has dropped over 90 percent.
Lack of regulation and compliance laws have nearly certainly contributed to the up-to-date dip in the crypto market, and it is why investors are worried.
One of the biggest hurdles to widespread adoption of cryptocurrencies is the lack of regulation and suitable governance structures within the sector. There is increasing skepticism from governments and investors alike when it comes to the digital currency.
How traditional finance regulation can support cryptocurrencies
In particular, regulations surrounding Anti-Money Laundering (AML) and Know-Your-Customer (KYC) are obstacles to overcome.
These are vital areas of the conventional financial markets that fight the issue of anonymity and allow the ability to identify specific sources of funding.
AML and KYC have been part of a governing process led by FATF, the international organization that combats money laundering and financing of terrorism.
They have issued many directions, but the main one concerning cryptocurrency is if you can identify the source of the funding, then you can trackback where “dirty” money has come from.
Many financial institutions, including banks and service providers such as lawyers and accountants, have therefore selected procedures such as KYC to avoid anti-money laundering. But this is harder to do in the crypto space due to the challenge of anonymity, although it is not impossible.
Are KYC and AML the key to bringing back the crypto boom?
A self-regulatory group with top exchanges can be set to add a new layer of security and responsibility to the crypto markets.
This group can be a sort of gatekeeper, holding all cryptocurrencies to a certain standard.
Before implementing these standards across the market; however, members need to ensure total transparency and accountability within their digital currencies and be prepared to accept penalties and sanctions for non-compliance.
Currently, because of regulation and compliance hurdles, some investors may be sitting on the fence, waiting for greater transparency of crypto regulation and protection.
Combining self-regulation with more established practices of trust and accountability could be enough to reinvigorate the cryptocurrency boom.
As more of these regulations and compliance standards appear, specifically around AML and KYC, this should help catalyze traditional investments in the market.
