What is KYC, and What Are Its Main Benefits and Pitfalls for ICO Token Sales

Liudmyla Tatura

Content Marketing Manager at ICOAdmin

Views 847

What is KYC, and What Are Its Main Benefits and Pitfalls for ICO Token Sales

12.06.2018 10:45 am

KYC is one of the most controversial subjects in today's crypto world. The number of ICOs requiring KYC verification is growing day by day. For this reason, it's essential to have a clear understanding of this procedure. In this article, we'll take a closer look at KYC/AML regulations so that you don't feel like you're in uncharted waters anymore.

KYC stands for "Know Your Customer". It's the process of identity verification of the customer. Each backer is supposed to pass the KYC procedure and provide their credentials in order to participate in the ICO. This is a necessary measure to ensure that the ICO projects are doing business with legitimate entities.

How KYC works? The procedure is simple: a backer needs to send a scan copy of their passport (ID or driver's license for the US citizens) and make a selfie (holding the document in their hands). This allows to avoid a fake identity or using a duplicate account. Sometimes, the confirmation of residency or other documents may be required.

The term AML (anti-money laundering) refers to a set of policies, laws and regulations aimed at combating generating income in a fraudulent way. This concept is broader than KYC. Let’s picture the following scenario: if an ICO project has a strong KYC during the token generating event – it’s a sign of legitimacy for banks. It means that such project won’t find it difficult working with banks and following AML regulations. There’s a direct link between these two procedures.

Let’s look at ICOs in a global context. KYC and AML regulations differ from country to country. Some states, like China and India, are not allowed to join ICOs according to local laws. The US has their own peculiarities. The latest reports inform that the US Securities and Exchange Commission is going to prosecute ICOs that were held without KYC procedures.

The key benefits KYC offers to the table

The idea behind KYC may seem counterintuitive at first glance. However, we shouldn’t jump to conclusions. On the one hand, KYC undermines one of the key principles of the crypto world – anonymity.  On the other hand, it ensures transparency of transactions, and this is the most important thing. It guarantees that the token sale is legitimate.

Here are the main advantages that come with implementing KYC:

  • preventing scammers from participating in ICOs for malicious purposes;

  • combating criminal acts (money laundering);

  • ensuring safety of investors’ assets;

  • avoiding legal, tax and reputational issues;

  • establishing credibility with banks.

At ICOAdmin, safety of our clients and customers is our top priority. With this in mind, we've made our dashboard KYC/AML compliant. Specifically, it has a KYC module – the CMS-integrated compliance solution that collects information about customers (in the back office of the dashboard). It allows our clients to review information about their backers and decide whether to accept or decline token purchase rights for selected participants based on legal compliance. At their will, we can refer our clients to trusted third-party services to execute the validation or they can do it by themselves.

Traps and pitfalls of KYC to be wary of

For obvious reasons, most backers want privacy and have no desire to show their documents to anyone. They take KYC as an additional barrier to enter the ICO, which poses a lot of risks. The biggest threat among of them is data leaks. Backers want their IDs to remain secure by all means, but the online world is not as safe as we want it to be.

Bear in mind that KYC procedure can occur at different stages:

  • before purchasing tokens – quite a popular option;

  • before registration – a very rare option;

  • before the output of tokens – the most tricky option. If refund happens, the project defines by itself how to execute it right.

To successfully pass the KYC procedure, it’s highly recommended to carefully study KYC/AML regulations of the specific ICO project in advance. With ICOAdmin – a provider of fully-customized software solutions – you can get KYC compliance support on whatever stage you need.

Conclusion

When it comes to anti-money laundering, implementation of KYC for ICOs is critical. It aims to minimize the number of criminal acts and ensure the safety of token sales. Figuratively speaking, it’s a protective measure for ICО projects and their backers allowing them to run business in a transparent way. The stakes are high, and what we really need is trust.

 

Latest blogs

Brandon Li Austreme

Brand Protection: Combating Online Counterfeit with AI

Online sales of branded and luxury items have been rising drastically, in the recent decade. While all the brands are investing big money on establishing online stores, organizing marketing campaigns and doing all the operation enhancements, on the Read more »

Javid Khan Pulsant

Using Cloud to Relieve the Compliance Burden

A recent survey of more than 360 enterprises revealed that 86% are dealing with the complexity of multiple types of data and/or data-related processes subject to privacy and security compliance requirements. Just 61% say that their organisations are Read more »

Lina Adolf-Orup Fingerprints

Fingerprint on the Pulse: Biometric Payment News

It’s quite hard to believe that we’re already entering Q4. For the biometrics industry, it’s been a unique and exciting year – one marked largely by its increasing convergence with the world of payments. For payments and biometric lovers alike, it Read more »

John Bertrand Cognizant

New Technologies create new opportunities in trade finance and working capital

At Sibos 2014 in Boston blockchain was the talk of the show and the movement towards adoption of new technologies was up and running. As Sibos 2018 opens in Sydney, APIs and open banking based on their adoption will be high on the agenda, indicating Read more »

Marten Nelson Token

PSD2: The real RTS deadline is closer than banks think

Let’s work backwards. Most banks know that the final deadline to comply with PSD2’s Regulatory Technical Standard (RTS) is 14th September 2019. Eleven months away.  Following the amendments to the RTS, however (based on industry consultation and Read more »

Related Blogs

Ed Lloyd encompass corporation

KYC remediation: Don’t let outdated customer information expose you to risk

Regulatory and reputational drivers for KYC and customer remediation Read more »

Claus Christensen KYC

The challenge of fulfilling Know Your Customer checks using blockchain

The advent of blockchain heralds the biggest change in banking for 400 years. Banks were originally established to lend and safely hold money and to act as a central point of authority with the banking ledger being the absolute record of truth held Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App