Majority of cryptocurrency wallets and exchanges have inadequate identity verification

Jun 5, 2018 | Chris Burt

Categories Biometrics News | Financial Services

A shocking 68 percent of 25 prominent digital wallets and cryptocurrency exchanges are allowing users to trade crypto and traditional (“fiat”) currency with no formal identification and no KYC checks, according to a new study from P.A.ID Strategies.

The report “The Cryptocurrency Identity Crisis” was commissioned by Mitek, and shows that as the 18-month implementation period for compliance with EU anti money-laundering directive AMLD5 nears its end, the majority of crypto wallets and exchanges are not compliant. Those non-compliant exchanges and wallets are enabling trading with only an email address and a mobile telephone number, according to the report, and are failing to verify identity against existing ID documents, check Politically Exposed Persons lists and perform sanctions screening, and are not generating the auditing trails necessary to trace criminal activity. With AMLD5 due to come into force next year, these business risk not only regulatory penalties, but reputational harm if they are discovered to be used for money laundering.

“Wallets and exchanges want to change perceptions of lawlessness and it’s a relatively straightforward fix. Identity verification processes can be—if implemented correctly—simple for the customer and no barrier to signing up,” said Kalle Marsal, COO, Mitek. “By incorporating systems that are just as future-looking as cryptocurrency itself, exchanges and wallets can be both competitive and compliant with regulatory demands.”

The report gives each wallet and exchange an “ID Verification Score” out of ten, which range from nine for Coinbase, Gemini, Poloniex, and itBit, to two out of ten for SpectroCoin and Indacoin.

Mitek has recently formed partnerships with Signicat and Experian to strengthen identity verification for financial services and other businesses.