More than half of all exchanges around the world have weak KYC identification protocols, according to a new study by analyst firm CipherTrace, with exchanges in Europe, the United States and the United Kingdom being the most serious offenders.
CipherTrace analyzed over 800 decentralized, centralized, and automated market maker exchanges and found that 56% of them did not follow KYC guidelines at all, despite anti-money laundering (AML) regulations. The largest number of these exchanges are found in Europe, a region known for its stricter rules. However, 60% of European virtual service providers have incomplete knowledge of your customer practices.
The USA, Great Britain, and Russia are the three most traded countries with weak KYC. Singapore also ranks first in the number of vulnerable and porous VASPs.
The study found that many exchanges do not mention the country of origin on their website or their terms. This seems intentional – of these exchanges, 85% have a fragile KYC structure. This means that some exchanges hide their jurisdiction to avoid having to register or comply with anti-money laundering rules.
The report notes that 70% of Seychelles listed stock exchanges have poor “Know Your Customer” rates, making the small island nation a hotbed for potential money launderers.
The study also looked at 21 DEXs and found that up to 81% have little or no demands from your customer (KYC). However, DEXs aren’t necessarily a good place for laundering money. CipherTrace noted that although $ 7.9 million stolen KuCoin hack was sold on the decentralized Uniswap exchange, it was not laundered there.
“The hacker doesn’t use DEX to hide its tracks,” said Tom Robinson, Elliptic co-founder. “Instead, it does to sell stolen tokens.”
DeFi projects offer traditional financial activities such as lending services, loans, and interest rates, which means they may be subject to the same regulations as banks and other regulated financial institutions.
“These are all financial transactions, and may actually be subject to various laws, including securities laws, potential banking and credit laws – and certainly anti-money laundering / anti-terrorism laws,” Valerie Chibanik told SEC Crypto Czar earlier this month.
Dave Jeevans, CEO of CipherTrace, said he didn’t think the DeFi protocols would accept the rules easily.
“From what we’ve been through the past two months, they have nothing to do with KYC,” said Jevans.
They only say that they write the programs, and while they benefit from it, they do not “run” it. But it is interesting to see what platform management is, which venture capital firms often do. ”
Jevans added that he doesn’t think DeFi will avoid the rules for long.