Following the denouncement made by a Binance Singapore user that his account was marked by Anti-money laundering law and counter-terrorism financing controls, the Executive Director of Binance, Changpong Zhao (CZ) has provided clarity regarding the doubts about KYC, AML, privacy, and types of exchanges. CZ further stated that KYC and AML are the two basic requirements of the regulations.
Know Your Customer (KYC) explains the needs for a financial institution to know the people they are doing business with. In cryptocurrency, the regulation requires the need for customer identification and address to initiate exchange; the KYC policies, therefore, address the issues of money laundering and terrorist financing. The Anti-Money Laundering (AML) regulation on the other hand, is popularly used for assessing the possibility of money laundering and fraud. In the crypto-setting, AML seeks to prevent all kinds of financial crimes that can lead to distrust of the blockchain system. In the fiat currencies, banks collect information on the source of their customer funds. Crypto-world does the same by assigning chain transaction service providers to analyze the risk associated with every transaction in compliance with certain regulatory requirements.
Types of exchanges; there are basically three types. The Regulated Exchanges are domiciled in some countries and comply with a set of regulations often required by an “Encryption Exchange License”. Users are often required to register with a state agency or acquire a conventional financial service license. The Exchanges Out of Regulation type are unregulated exchanges made in countries with no regulations. The Decentralized Exchanges are unregulated, and usually based on blockchain and have no specific address.
Privacy: There are certain privacy checks that users are obliged to comply with during an exchange. Users can use the regulated exchange (AML involved) or the unregulated exchange (risk involved), Decentralized exchange (less liquidity and no fiduciary access), or privacy currency (absolute protection) – this also concerns the laws of the country.