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Playing by the Rules: KYC at Binance

2023-07-25

Main Takeaways

  • In the new issue of Playing by the Rules, we look at Binance’s Know Your Customer (KYC) measures – a set of policies and procedures that ensure that we know who our users are to keep bad actors out of our ecosystem. 

  • KYC measures enable financial service providers to safeguard users against malicious activities like fraud, money laundering, and terrorist financing, while ensuring adherence to regulatory standards. 

  • Binance's stringent and comprehensive KYC process enables it to accurately identify customers, assess risks, and maintain a trustworthy ecosystem for all users, thus upholding a compliant and secure platform.

Know Your Customer (KYC) is a legally mandated procedure whereby financial institutions, including banks, cryptocurrency exchanges, and other financial service providers collect identifying data and contact information from existing and potential clients. Its main purpose is to prevent fraud, money laundering, terrorist financing, and other illicit activities and to ensure customer due diligence as a part of Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance efforts.

The term “KYC” itself is industry jargon that was originally used by compliance professionals but has since become common among crypto traders and investors. From the user perspective, “KYC” is synonymous with identity verification.

Without effective KYC practices, assessing user risks becomes problematic, and financial institutions might inadvertently facilitate unlawful activity. Robust KYC frameworks in the crypto industry safeguard users against hackers, market manipulators, and money launderers. Binance adheres to a stringent KYC process that ranks among the industry's most rigorous. Here’s how our Compliance team goes about ensuring that we know who our customers are and there are no bad actors on our platform who might want to abuse the Binance ecosystem.

The Role of KYC in Crypto

The fundamental function of KYC in the digital-asset industry is to identify potential bad actors, deny them access to the ecosystem, and prevent money laundering, terrorist financing and other fraud-related conduct, ensuring a safer environment for everyone. A comprehensive KYC program allows crypto firms to truly know who their clients are and accurately measure the risk they pose to their platforms and the broader community. 

The role of KYC in the crypto industry is thus the same as in traditional finance, which is protecting businesses, their customers and communities by not allowing bad actors access.

A robust KYC onboarding process allows digital asset service providers to strip away anonymity, collect important client information, establish efficient identity verification, and inform a risk-based analysis that results in the ultimate decision on whether to approve a client application or decline it.

Developing KYC Processes and Protocols

Here at Binance, we take the prevention of money laundering, financing of terrorism, and proliferation financing very seriously. We follow a risk-based approach to countering these threats that is consistent with international best practices. 

We evaluate the laws and regulations specific to each geographic location where we operate in and build our compliance program in that jurisdiction to meet those requirements along with following international requirements. AML and CTF legislation as well as the local financial intelligence unit’s direction forms the foundation of our KYC approach.

The development of KYC measures at Binance is a collaborative process involving senior members of the KYC team, subject matter experts from Legal, Technology, and Operations, and members of the senior management team. The main components of a KYC framework are identity verification (including biometrics’ comparison to government-issued ID, ID legitimacy screening, liveness checks, and optical character recognition (OCR) capabilities to validate client-entered information), IP geolocation, enhanced due diligence as well as screening against sanctions, politically exposed persons’ (PEP), and adverse media databases, and law enforcement, financial crime, and regulatory enforcement lists.

The Compliance team at Binance is focused on maintaining a KYC program that meets all legal and regulatory requirements while also ensuring a solid experience for our users. One way we do this is by constantly evaluating innovative technologies and potential vendor partners that can help minimize friction associated with KYC procedures. A good example is the speed and efficiency of our identity verification process, which utilizes the latest biometric screening, analysis, and validation technologies.

Identity Verification (IDV)

Identity verification is the foundation of a KYC program in any consumer-facing financial company. Granted, this is hardly users’ favorite part of the experience with a crypto platform, but Binance’s status as a responsible industry leader dictates that we prioritize our users’ safety above all else. Supported by industry-leading companies such as Onfido and SumSub, among many others, the identity verification experience on Binance is about as seamless and efficient as it can get.

Money launderers and hackers often try to obscure the source of ill-gotten funds by spreading small amounts of money across many accounts. If a platform has weak identity verification capabilities, bad actors can find a way to register multiple accounts to serve this purpose – for example, by using fake IDs or taking advantage of lax policies when platforms allow account registration without government-issued IDs. If there are no strong identity checks in place, a malicious user can come back to an exchange after having been caught conducting illicit transactions: they would only require an alternative email.

Binance’s strict KYC policy imposes a zero-tolerance approach to double registrations and anonymous identities, which is enabled by rigorous document and liveness verification checks.  These measures greatly reduce the chances of illegitimate funds making their way into the Binance ecosystem and the larger Web3 space.

Binance’s KYC Procedures

Identity verification is a necessary step for anyone who wants to transact in digital assets on Binance. Those with unverified accounts are allowed basic access to the Binance site: they can explore our offerings, claim NFTs, Fan Tokens, and Gift Cards, but under no circumstances can they interact with any of Binance trading products.

Binance’s KYC process is structured into three tiers — Intermediate, Advanced, and Advanced Pro. Specific requirements can vary depending on the jurisdiction the user is in, but in most countries, the basic steps are the following:

  1. Collection and confirmation of the customer’s personal information, submitted by the user and attested via a valid government-issued identification document.

  2. A real-time liveness check that compares the user’s face with the government-issued document they’ve provided.

  3. Verification of the user’s identity against World-Check Risk Intelligence, the largest database of high-risk, sanctioned, and politically exposed individuals.

Users residing in jurisdictions that have mandatory proof of address requirements must additionally provide valid address information before they can secure full access to the Binance ecosystem. Those outside of such countries only need to provide proof of address if they want to increase their daily fiat withdrawal limit from the standard $50,000 to $2M.

If you need a deposit and withdrawal limit significantly exceeding Intermediate and Advanced tiers’ standard caps, you can request an increase having declared your sources of wealth, sources of funds coming to Binance, and whether you or any of your family members are on the list of Politically Exposed Persons (PEPs). This ensures that each request for significantly increased limits is legitimate and appropriate to the user’s proven net worth.

A comparative analysis of some of the biggest crypto exchanges’ KYC policies shows that Binance’s identity verification requirements are among the most thorough in the industry, reflecting our commitment to putting the safety of our users and ecosystem first.

Final Thoughts

Binance's robust KYC framework plays a critical role in protecting the platform, its users, and the wider community from potential threats like fraud, money laundering, and terrorist financing. By implementing a comprehensive KYC process involving identity verification, screening against sanctions and PEP lists, and enhanced due diligence, devised and executed in collaboration across various teams, Binance is able to uphold a high standard of safety and compliance across multiple jurisdictions. It highlights Binance's commitment to being a responsible industry leader within the crypto landscape, prioritizing user security and adhering to both local and international regulatory requirements.

Further Reading

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