Goldman Sachs Circle/Poloniex And AML/KYC

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As the dust settles on the Goldman Sachs Circle/Poloniex acquisition, regulators are keeping a sharp eye on KYC/AML mandates regarding crypto exchanges. Joseph Weinberg, OECD Think Tank Special Advisor and Chairman of Shyft, a blockchain protocol that will create a new standard for the KYC/AML mandates, has the following commentary. Below are some comments from Joseph on the topic:

Crypto Exchanges Have Been Doing Above-Par Due Diligence
“Most crypto exchanges that are processing fiat to crypto transactions are very compliant and in some cases, even more so than banks. For example, a recent review stated that Australian banks make potential customers go through a less stringent due diligence process than crypto exchanges. It all really depends on jurisdictions and the compliance policies given by countries to crypto exchanges. For crypto exchanges, the challenge lies in how little formal guidelines that are from regulators. As a result, most of the industry has been doing self-compliance in absence of clear procedures. To err on the safe side, crypto exchanges over-regulate themselves. For example, most exchanges ask for passport verification in order to confirm users’ identities, whereas most banks only require government issued IDs, such as drivers licenses.

“Money launder is not unique to the crypto markets—it is prevalent in most financial markets and therefore should be expected in crypto markets as well. Most people mistakenly see the pseudo anonymity of cryptocurrencies like bitcoin and presume that it is a great mechanism for money laundering, when it is actually the opposite and probably one of the worst ways to facilitate these types of activities. Bitcoin and most other cryptocurrencies are highly-trackable and provide pure, immutable transaction trail histories. With the amount of centralized crypto transaction centers, such as exchanges, this means that within a few points of separation, most coins are highly traceable. Of course, there are security coins such as ZCash and Dash that change this on the protocol level. And as any new technology grows, so do its use cases—both in good and bad ways.”

About Poloniex’s KYC History & Beyond

“In the past, Poloniex had a lot of issues with onboarding new users and properly building out its KYC process, mainly due to the large amounts of time it takes to verify users. I would say that all exchanges have this problem as it can take weeks, or even months, in order to verify the authenticity of all the data and then check it across sanctions databases and other sources. Given the level of KYC that exchanges force themselves to go through, scaling compliance is almost a separate product that the exchange has to build out.

Through this acquisition, Circle will deploy more people to help handle compliance—more employees to build and process KYC due diligence faster. This is the same type of issue tranditional banks have when it comes to scaling. Compliances costs keep multiplying and yet, they aren’t always found to be effective.”

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