Institutional investors face a number of compliance challenges such as Know Your Customer (KYC) and Anti Money Laundering (AML) before participating in crypto investing.
Regulators expect sufficient screening to have been completed and weak KYC is a common complaint.
KYC is a long and thorough process in the financial industry and is usually undertaken by dedicated teams. Nick Cowan, CEO of the Gibraltar Blockchain Exchange (GBX), an institutional-grade token sale platform and digital asset exchange that is a subsidiary of the Gibraltar Stock Exchange, stresses that KYC and AML play a vital part in building trust and security within an industry which has often been compared to the ‘Wild West’.
Cowan sees these processes as a must for any and all transactional business. “Participants for KYC and AML and the issuers that come to our token sale platform are vetted by our sponsor firms and our rigorous application process,” he says. “This is a must to help build trust and transparency which ultimately protects all parties involved and will create a gateway for institutional money to enter the space.”
Omri Ross, the CEO of Firmo, a company specialising in security in financial contracts to crypto exchanges, stresses there are a number of factors institutional investors need to be aware of when going through the KYC process.
Ross says: “KYC is a commonly known pain point for institutional investors, generating costs north of $500m annually for the involved parties. Due to fragmented legislation and lack of standardised KYC/AML procedures across APAC, EU, and the Americas, verifying customers may last months, requiring large resources and trained personnel.”
Who you share your data and confidential information with is another factor to be aware of. “My priority when evaluating a process is the authenticity and thoroughness with which the process is completed,” Ross adds. “Does the process meet international standards for rigour and does it involve the necessary documentation? Additionally, as KYC/AML involves highly confidential data, is there proof beyond any reasonable doubt that the verifying institutions will manage the data correctly?”