Although know-your-customer (KYC) and anti-money-laundering (AML) are not yet obligatory for ICO investors, these procedures may regulate all token distributions in the future.

Briefly about KYC/AML

Financial institutions and regulated companies can verify their customers’ identities by means of due diligence, which is called KYC. It is necessary for the authorities to be sure that users they’d like to collaborate with are trustable.

KYC monitors and checks up the following types of customer data:

Personal identity

Blacklists memberships

Credit and other commitment-related risks

History of transactions

KYC requirements can change from one country to another. KYCMap is a handy tool to track the differences.

AML covers a group of procedures designed to avoid affiliating with any illegally generated profits. These procedures can differ depending on the location. The Financial Action Task Force on Money Laundering (FATF) recommends certain techniques to identify suspicious funds. These recommendations are applied for KYC purposes as well.

Do ICOs Need KYC/AML?

Some people consider this procedure unnecessary because all token holders are anonymous anyway and can’t be identified. To do that, an inquirer would need to obtain the token holder’s keys, both public and private. Since the private key is accessible only to the holder, nobody else can identify this person.

On the opposite, the supporters of KYC/AML argue that as an increasing number of countries start regulating token offerings, KYC/AML can reduce the risk of considering an ICO illegal.

Currently, more companies launching ICOs are likely to require KYC/AML from their potential token owners. This is to eliminate possible further risks if any updated regulations come into effect. genEOS, for instance, requires that investors pass the KYC check before claiming their tokens.

How Can Blockchain Help with KYC/AML Implementation?

To make KYC/AML transparent, immutable, and secure, blockchain can come in handy. Blockchain’s inherent public ledger guarantees that no changes can be done without the approval by blockchain’s members. As the data storage is decentralized, the fact of its forging is close to impossible.

Takeaways

Although now KYC/AML is not yet obligatory for ICOs, this can change in the future. Such a risk is connected with the ever-changing nature of regulatory norms.

That’s why, to mitigate potential risks, startups are welcome to introduce the KYC/AML functionality to their blockchains.