This summer, the European Commission finally agreed on a provisional version of cryptocurrency restrictions within the European space: the Markets in Crypto Assets (MiCA) framework. MiCa is a regulatory framework that paves the way for crypto regulation to keep the European financial sector competitive, allowing for greater innovation and protecting customers and financial stability at the same time.

The framework was unveiled in mid-2022, but it was the result of a process that began in 2017, when Bitcoin crossed the $1000 mark, triggering a bull run with the cryptocurrency skyrocketing to over $19,000 within a year.

MiCA establishes rules for issuance and trade of any "digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology". This includes utility tokens, asset-referenced tokens, or electronic money tokens.

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Brace yourselves, MiCA is coming

There is still no timeline for MiCA's implementation. However, rising trading volumes are driving demand, and investors are turning to digital assets — making the traditional financial markets more vulnerable to crypto crashes. As a result, the framework will likely come into law within the next few years. Other countries, like the United States, already have made KYC and other AML procedures mandatory for crypto exchanges.

The MiCA framework is intended to complement the Anti-Money Laundering (AML) directive in a more specific manner, focusing on cryptocurrency. While MiCA will not apply to non-European crypto exchangers directly, they will need to comply with the framework if they're targeting UE investors or clients.

Companies providing any service related to the above-mentioned crypto assets (from keeping custody and/or administration of crypto assets to operating a trading platform) need to obtain approval from regulatory authorities within an EU country. Upon approval, the license is "transferable" from one country to another, as long as it is within the European Union.

More specifically, the framework sets ground rules for:

• The issuance and trading of crypto assets.
• The authorization and supervision of crypto service providers.
• Customer knowledge and protection.
• Preventing market pitfalls and ensuring the integrity of crypto markets.

Among other requirements, MiCA states that KYC and AML procedures must be applied to crypto assets. The identity of crypto wallet holders must be established and verified. These traceability regulations have been subject to fierce criticism from the crypto industry, deemed to violate identity privacy.

What KYC means for crypto exchanges?

Know Your Customer (also known as KYC) is a set of guidelines that have been introduced in the financial industry to prevent money laundering. KYC crypto procedures are designed to identify customers before any token transaction is made. For the KYC verification process to be concluded, customers need to provide personal information and documentation, and the exchange must verify and validate these documents.

Some of the most popular exchanges have already implemented KYC procedures, while others are still left standing when it comes to this matter. But what does a KYC crypto procedure look like?

Simply put, the customers will need to make proof of identity before selling or buying cryptocurrencies. When registering for the first time, they are asked to supply their full legal name, date of birth, address, valid phone number, social security number, and email address. Identity is verified through an official government document, such as a driver's license or passport. Some exchanges do this by asking the user to submit a copy of the document and then wait for approval before moving forward. The user can have to wait up to 48 hours for this to be processed in some instances, and it is extremely frustrating for them.

Using digital face authentication solutions can help exchanges speed up the process of ensuring the identity of their users. Face authentication makes it possible to verify users' identities in just a few minutes with a high accuracy rate, thus onboarding and ramping up customers in a shorter timeframe.

Customer identity verification with ease

The purpose of cryptocurrency is to provide people with a way to engage in financial transactions without depending on banks or financial institutions. For cryptocurrencies to gain mass adoption and have a true impact on the financial sector, they must reach a high level of trust in the public. Hacks and scandals have eroded cryptocurrency market trust to a great extent.

KYC procedures not only prevent fraud from users but also improve the trustworthiness of exchanges. To maintain a smooth and seamless flow of onboarding and transactions, exchanges must opt for solutions that enable them to verify their customers with ease.

Key takeaways

• European crypto exchanges will soon be forced to implement KYC procedures.
• Exchanges will benefit from the introduction of KYC as it will improve their trustworthiness and encourage mass adoption of cryptocurrencies.
• Face authentication solutions allow exchanges to perform customer identity verification in a seamless manner, without compromising the experience.

How can you offer these features to your clients?

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And because we trust so much in the quality of our products, we make it possible for anyone to integrate and test our solutions in minutes. Just register and subscribe a free plan. Any specific tool you would like to integrate face authentication with? We're integrated with Auth0, Okta and are continuously expanding this list. Feel free to get help on our discord channel or get in touch directly with our support team.