Let’s Talk Compliance in Crypto

We sat down for coffee and a brief Q & A session with the Compliance Officer at Quidax and she gave us key insights into Quidax’s robust compliance framework and why it is important for both our individual and business customers. 

Here is how it went…

Why is it crucial for crypto exchanges to have a robust compliance framework?

Without a robust compliance framework, crypto exchanges can become a tool for money laundering, terrorism financing, fraud and criminal activity. This can ultimately lead to a loss of confidence in the entire market, which can cause the value of cryptocurrencies to fall.

We have seen this in recent high-profile cases where exchanges have faced legal action for compliance lapses. By having a compliance program in place, exchanges can show their commitment to maintaining regulatory compliance and safeguarding customer interests.

How does a strong compliance framework benefit business operators using crypto?

A strong compliance framework is beneficial to business operators in the following ways:

  1. It helps in preventing illicit activity: Know-Your-Customer (KYC) helps businesses prevent money laundering, terrorist financing, and other illegal activities by ensuring that customers’ identities are verified before they can transact. It adds an additional layer of security and reduces the risk of fraud.
  2. Building Trust: By implementing robust KYC processes, businesses can build trust with their customers. Users feel more secure knowing that the business takes their safety and compliance seriously.
  3. Regulatory Compliance: By implementing KYC processes, businesses can show compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. 
  4. Due Diligence: KYC enables businesses to perform due diligence on their customers. By verifying identity information, businesses can assess the risks associated with each customer and proactively set up controls to address such risks.

What are the risks associated with using crypto exchanges without proper compliance measures?

Simply put, customers and investors can or may lose their money doing business with a crypto exchange that does not have proper compliance measures.  

How does compliance contribute to the credibility and trustworthiness of a crypto exchange?

Complying with KYC and AML regulations can help crypto exchanges build trust and credibility with their customers. By showing commitment to comply with existing regulations, implementing adequate KYC standards, exchanges can prevent illegal activities and protect customers. This in turn leads to increased customer trust in the exchange and establishes a positive reputation for the exchange.  

How does a compliance framework help crypto exchanges mitigate the risk of fraud and illicit activities?

A strong compliance program helps protect customers and prevent fraudulent activities. By adequately identifying and verifying the authenticity of customers and monitoring their transactions, we can prevent money laundering, terrorist financing, fraud and other illegal activities. 

What are some key components of a comprehensive compliance framework for crypto exchanges?

Compliance Programme – A strong compliance programme includes establishing policies, processes, guidelines, having a compliance officer/officers and ongoing training of the team. 

Compliance Governance – One of the key roles of the Board of Directors is to provide management oversight. The board of directors approves the compliance program, communicates expectations, and is responsible for enforcement to ensure that everyone complies. They lead by example and set the tone at the top.

Independent Audit – An audit is a review of the organisation’s compliance status. It is essential because it helps management to identify compliance risks and come up with corrective actions. It is a proactive way to effectively manage compliance risk.

How can businesses ensure that the crypto exchange they’re using has a strong compliance framework in place?

They can look out for 2 things:

  1. The quality of the KYC/due diligence conducted prior to onboarding. Is the process thorough? Or can anyone sign up and start making deposits and withdrawals without providing further information? 
  2. The risk measures in place: For instance, are customers categorised based on their perceived risks? How does the exchange treat politically exposed persons?

Final words….

Implementing a robust compliance programme is necessary to maintain the integrity of the crypto market globally and prevent market abuse.  The impact of the collapse of large crypto trading platforms extends globally and highlights the need to have strong compliance programmes in place. In conclusion, the integrity and stability of cryptocurrency globally is largely dependent on the implementation of strong AML/CFT measures across all crypto-related activities.

At Quidax, we maintain a comprehensive regulatory compliance programme, incorporating advanced technology and expert oversight to ensure the money of  our individual and business clients are safeguarded.


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