What is KYC?

KYC (‘Know Your Customer’ or ‘Know Your Client’) is part of the broader concept of AML (‘anti-money laundering’), which involves a set of policies, laws and regulations aimed at combating generating income in a fraudulent way. 

Money laundering and tax evasion are considerable crime threats both on national and international levels. Over the years the European Union—of which the United Kingdom (where Electroneum Ltd. is a registered business) is currently a member—has been giving increasing recognition to the fact that money laundering and tax evasion can create serious damage to the stability and reputation of the financial sector, as well as to the economy as a whole.

In May 2015, the European Parliament and Council passed the 4th Anti-Money Laundering Directive (AMLD) to introduce a common framework for proportionate prevention of the use of the financial system for the purpose of money laundering or trafficking. According to the Directive, each member state of the EU should take appropriate steps to identify, assess, understand and mitigate the risks of money laundering through a designated authority or security mechanism coordinating the national response. Furthermore—as per the Directive—obligated entities are required to take appropriate steps to identify and assess the risks of money laundering. It is a part of that process that is known as KYC. 

KYC typically involves:

  • collection and analysis of identity documents,
  • name matching of customers against a list of known parties,
  • creation of an expectation of customers’ transactional behaviour,
  • monitoring of transactions for unexpected behaviour, etc.

…with the specific aim to prevent money laundering and to weed out any suspicious accounts.

Whilst a relatively common practice elsewhere, KYC remains one of the most controversial subjects in the cryptocurrency world. On the one hand, KYC can be said to undermine one of the main principles of the crypto world — anonymity. On the other hand, KYC ensures transparency of transactions, and strengthens the security of users and business-partners in a hybrid (fintech-blockchain) systen such as Electroneum’s.

Some of the main advantages KYC brings are:

  • increased ability to prevent scammers from exploiting Electroneum’s infrastructure for malicious purposes and to combat criminal acts such as money laundering;
  • ensuring safety of investors’ assets;
  • avoiding legal, tax and reputational issues;
  • establishing credibility with banks.

How is Electroneum going about implementing KYC?

Electroneum has partnered with the London based company Yoti to undertake the KYC verification. Yoti is a digital identity platform that makes it quicker, easier and safer for businesses to verify and authenticate their customers: The process is done via the Yoti mobile app.

For more details please visit the KYC and AML FAQs over at Electroneum‘s Community forum.

In summary: Electroneum is committed to implementing KYC to comply with EU regulations. KYC is also a vital precursor for commercial partners to start integrating Electroneum’s systems.