Guides & Tips — 29 Sep 2021
The space of crypto-assets and decentralized finance (DeFi) has been thriving on a decentralized approach to enabling and conducting transactions, both financial and informational.
Similarly, anonymity has been one of the leading agents that attracted millions of users seeking advanced financial solutions and new ways of transferring assets and information independently of centralized financial institutions and their rigorous bureaucratic requirements.
But regulatory bodies started implementing new measures, to which the world of digital assets will need to adapt. According to the recent update by the Financial Action Task Force (FATF), the Virtual Asset Service Providers (VASPs) will be treated the same way as traditional financial institutions. This means that the platforms providing digital asset management, such as cryptocurrency exchanges or DeFi platforms and apps, would need to start implementing KYC measures within the AML framework, much like traditional banks do.
It will therefore not be possible for them to keep holding onto the advantage of users’ complete anonymity. Instead, they will soon need to establish and provide measures that protect users’ accounts and assets in a way that doesn’t simultaneously undermine the core principle of decentralized transactions.
KYC and crypto-asset management can go hand-in-hand
As DeFi platforms adapt to the new regulatory measures, they could face concerns about how their user base would react to the need for submitting their data and passing KYC within an otherwise decentrally managed platform.
Yet, the fear that verification of users’ identity would devalue DeFi or crypto-asset services is unnecessary. If anything, having a crypto/DeFi-friendly KYC measure in place could improve the service or app and give it a competitive edge for the following reasons:
If the FATF draft is confirmed, the implementation of the KYC process will be a must for all users of crypto exchanges and DeFi platforms if these want to remain relevant and operational in the global financial ecosystem.
What is important to consider when implementing a KYC solution?
The features of the chosen KYC protocol should respond to the needs of crypto-assets/DeFi platforms as well as of their users.
For VASPs, their main selling point is the technology powering their services in a decentralized manner, while they see the KYC operation as a legal must that is not the core focus of their development team. For a KYC measure to be successfully added to a crypto/DeFi platform, it should enable easy integration with existing technologies and linked operational systems – preferably, it’d be built from a readily-designed SDK that saves the hassle of fabricating the whole thing from scratch. If KYC is to follow its core purpose – to mitigate the risks of fraudulent activity – it should support reference data connectivity and be capable of processing large amounts of data as platforms welcome an ever-increasing influx of users.
On the other hand, when users meet the need to pass a KYC, too often, they see it as a cumbersome, albeit unavoidable measure. For easier onboarding, the KYC interface should be straightforward, highly intuitive and responsive, allowing for speedy processing of submitted data. Besides, a good KYC solution that would cater to users’ needs should support data privacy, ensure high security of data management and allow for personal data verification without storing it in the service provider’s local database.
Going with KYC SDK is the safest bet
Developing a KYC solution from scratch demands loads of experience in software development and a deep understanding of the legal requirements in specific industries. It could take months, ample resources, and a skilled workforce, yet the end product could still turn out to be less-than-adequate.
Building with a readily available KYC SDK provides VASPs with an optimal starting point to achieve faster and better results. Regula KYC Platform is an on-premises solution that includes advanced ID verification SDK and face biometrics SDK.
There are several advantages of implementing an end-to-end KYC platform:
Building on advanced KYC SDK, the crypto/DeFi services provide a better KYC experience and improved features to their users:
KYC for crypto and DeFi is an unavoidable destination. Get there with Regula.
As serious and responsible cryptocurrency exchanges and DeFi platforms adapt to the new regulatory conditions, a seamless, user-friendly and secure KYC SDK could serve as the agent boosting competitiveness and expanding their market reach.
This ever-growing new wave of financial industry thrives on the millions of users seeking advanced monetary services but also valuing the high security and reliability that come with it.
With Regula’s SDK, identity and biometric verification solutions, the crypto exchanges and DeFi platforms can easily implement a thorough KYC service to benefit their existing users, attract new ones and ultimately boost the adoption of decentralized services.
Regula’s SDK is further enhanced by technologies, such as MRZ reading, OCR, Document Type Identification, Face Matching and Liveness Detection. Together, they form a powerful foundation for VASPs that understand the necessity to comply with regulations and respond to the demands of their user base while relying on the best KYC solutions on the market.
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