Compliance in Cryptocurrency; All You Need to Know

In recent years, cryptocurrency has undoubtedly transformed the financial landscape, introducing significant advancements in value. As a result, investors, entrepreneurs, business leaders, consumers, and regulatory bodies are keenly observing the crypto sector’s evolution. As cryptocurrencies gain popularity and find more real-world applications, the importance of ensuring compliance has become more important.

The reason for this is not far fetched. With regulation, the expanding market could become more manageable, as demonstrated by the cryptocurrency market. Hence, this brings about the question: will compliance be crucial for the future of cryptocurrencies?

This post will explore the significance of crypto regulation and explain all you need to know about compliance in cryptocurrency. Let’s get into it!

Compliance in Cryptocurrency; All You Need to Know

What is Crypto Compliance?

You may be wondering, “What exactly is cryptocurrency compliance?” This is an important topic in the world of cryptocurrency. The rising occurrence of illegal transactions in cryptocurrencies underscores the need for compliance and therefore, highlights its significance in the crypto world. Cryptocurrency compliance essentially involves adhering to Anti-Money Laundering (AML) regulations. In summary, these regulations are there to protect investors by preventing fraudulent activities.

AML, or Anti-Money Laundering regulations are fundamental in demonstrating the importance of compliance within the cryptocurrency sector. These regulations consist of procedures and legal standards aimed at detecting and preventing the misuse of cryptocurrency assets and transactions for illicit purposes.

Major Components of Compliance in Cryptocurrency

The major aspects of crypto compliance focus on three critical components. These include:

  1. KYC (Know Your Customer)
  2. KYB (Know Your Business)
  3. KYT (Know Your Transaction)

Most businesses utilize AML standards to assess individuals, wallets, transactions, and entities, helping to identify and report any suspicious activities. The AML compliance process also stresses the importance of user verification through KYC, KYB, and KYT. This verification is essential for building trust among crypto users and enhancing the credibility of the ecosystem.

Know Your Customer (KYC)

KYC, or Know Your Customer, is a fundamental component of crypto compliance that primarily focuses on verifying the identity of individuals or customers. This process includes gathering and storing Personally Identifiable Information (PII) of customers. Usually, financial institutions perform thorough background checks on their customers to deter illegal activities.

Know Your Business (KYB)

Crypto compliance companies also prioritize KYB or Know Your Business, which mirrors the KYC process. Similar to KYC, KYB is a mandatory due diligence procedure that financial institutions implement to verify and review businesses. This process includes verifying the Ultimate Beneficial Ownership (UBO) to identify the legal representatives of a business. Additionally, KYB involves gathering identification data to confirm the legal status of businesses engaging with cryptocurrencies.

Compliance in Cryptocurrency; All You Need to Know

Know Your Transaction (KYT)

KYT extends the principles of KYC and KYB into the monitoring of transaction details within cryptocurrency compliance. This process involves checking whether the transactions of a specific business are lawful and unconnected to financial crimes. Essentially, KYT analyzes a company’s transaction data to detect any signs of suspicious activity. Significantly, KYT utilizes machine learning and artificial intelligence to provide valuable insights. 

Other Considerations of Compliance in Cryptocurrency

The following are other key areas to consider in crypto compliance:

Security Regulations

Depending on the jurisdiction and the nature of the cryptocurrency or token, it may be classified as a security. This means complying with the relevant securities laws, including registration, disclosure, and reporting requirements as dictated by regulatory bodies. Some of these regulatory bodies include the U.S. Securities and Exchange Commission (SEC), the Central Bank of Nigeria (CBN), and so on. 

Tax Compliance

Cryptocurrency holders and traders must understand and comply with tax obligations in their jurisdiction. This includes reporting gains and losses on cryptocurrency transactions and understanding how taxes work in cryptocurrency holdings. 

Licensing Requirements 

Many jurisdictions require specific licenses to operate a cryptocurrency business. Hence, understanding and obtaining the necessary licenses is essential for lawful operation.

International Compliance

As cryptocurrencies typically operate on a global scale, businesses must be aware of and comply with regulations in their home country. Likewise, they should consider regulatory laws in all other jurisdictions where they have customers.

Consumer Protection Laws

Ensuring that consumers are not misled or deceived is paramount in the crypto space. Compliance with consumer protection laws involves transparent disclosure of risks and fees. Also, relevant terms and conditions associated with cryptocurrency products and services must be stated.

Financial Reporting

Maintaining accurate financial records and reports is necessary, especially as regulatory bodies increase their scrutiny of the financial practices within the crypto industry. Therefore, you need to keep accurate records of all transactions in case there’s a need for investigation.

To sum it up, staying informed and compliant with these regulations is crucial for operating legally and successfully in the cryptocurrency industry. It also ultimately builds trust with users, partners, and regulators, and protects the business from legal and financial penalties. 

Compliance in Cryptocurrency; All You Need to Know

If you’re new to cryptocurrency trading, you can have a head start by adhering to these guidelines. Also, knowledge of these regulations will help you prevent certain challenges that come with cryptocurrencies and blockchain technology at large. 

Bitmama offers a secure marketplace for crypto enthusiasts. Perform activities like crypto trading and creating virtual dollar cards for online payment. Get started today by downloading the Bitmama app.


Adeola Adebo

May 13, 2024

4 mins read

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