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KYC and AML Compliance for Crypto Exchanges. Guide 2020

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KYC and AML Compliance for Crypto Exchanges. Guide 2020


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The beginning of 2020 was quite stressful for most cryptocurrency exchanges. On January 10, 2020, the 5th Anti Money Laundering (AML) Directive took effect. Some platforms announced their closure, while some threw all their strength into the struggle to meet the new requirements. This article will tell you how to win this battle. If you think we decided to write this article based on this directive alone, you are mistaken. February 2020 began with good news for the EXMO team. EXMO crypto platform has been rated top-tier in the latest CryptoCompare Exchange Benchmark. We are going to tell you about our experience, the number of requirements, and how many hours our AML-officer sleeps. Glossary:AML-   ANTI MONEY LAUNDERING CTF-   COUNTER-TERRORISM FINANCING KYC-   KNOW YOUR CUSTOMER FCA-   FINANCIAL CONDUCT AUTHORITY FATF- FINANCIAL ACTION TASK FORCE JMLSG- JOINT MONEY LAUNDERING STEERING GROUP HM-   HER MAJESTY PEP-   POLITICALLY EXPOSED PERSONS GDPR-  GENERAL DATA PROTECTION REGULATION MLRO-  MONEY LAUNDERING REPORTING OFFICERWe were not looking for a simple solution to enable us to meet the 5th AML Directive and from the very beginning, we approached the issue seriously. EXMO operates within the legal jurisdiction of the UK. It goes without saying that the UK is a strict but transparent legal field with well-developed regulatory tools. Also, the UK was among the first to implement cryptocurrency legislation. Therefore, if you suddenly decide to open your exchange, be sure to pay attention to the legislative framework of the country where the exchange is launched. Currently, there are only a few countries that issue licenses for cryptocurrency activities. At the beginning of the year, EXMO received Estonian licenses. Concerning AML compliance, we are currently in the process of issuing the AML registration from FCA—The Financial Conduct Authority. During January 2020, we’ve launched the mandatory verification on the platform. It was the necessary part of KYC and AML compliance, a crucial component for security. Now it’s easier for us to know the client, understand if we can trust them, and prevent possible fraud. Another measure we took was implementing the CipherTrace software. It verifies that the user’s wallets are not blacklisted, connected with terrorism, or associated with fraudulent activity, etc. With this software, we trace transactions and monitor potential risks. We had found that some withdrawals were being made to blacklisted wallets. Now we can prevent such transactions, track any fraud cases, and guarantee counteraction black market flows by following the anti-money laundering legislation within the framework of the platform. The results were positive, and on February 4th 2020, we are pleased to say that CipherTrace awarded us a Green rank. However, just using soft tools is not enough. Our Compliance team works 24/7 and also conducts manual monitoring of any suspicious transactions. We have developed a number of internal tools and guidance to monitor Crypto and Fiat transactions. Together with soft tools, we are confident that no EXMO account will be susceptible to falling victim to hackers. You probably heard about an inter-governmental body FATF—The Financial Action Task Force. It was established in 1989 with 37 countries becoming members. The FATF developed a series of recommendations for regulating cryptocurrencies and the activities of cryptocurrency services operators. Every three months, FATF updates a list of high-risk countries. This list is determined by the strength of laws against money laundering in a specific country, how much it cooperates in developing tools to counter laundering, and in providing data. So therefore, we do not work with users from blacklisted countries and we thus increase the security and compliance of our platform even more. Laws are updated continuously, and to comply with them, constant monitoring is necessary. We participate in crypto alliances, track FATF listings, and interact with FCA requirements groups. Of course, we do not forget about the local British law, tracing the requirements of Her Majesty’s Treasury (HM Treasury). Overall, the EXMO AML/CTF procedures are in line with the requirements of:We guarantee the timely implementation of legislative changes. Any exchange wishing to stay afloat must comply. PEP refers to Politically Exposed Persons. We monitor PEP lists to ensure our customers are not current or former politicians. We also track sanctions lists to ensure there are no risks of being involved in money laundering and terrorist financing activities. Ever vigilant to keep a finger on the pulse of these activities, we use Namescan. Let us reiterate CipherTrace and the 24/7 compliance department. If we note a suspicious

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