25/09/2023 Alexander

Why fiat on-ramp companies need KYB and AML

With traditional finance eyeing up the Web3 sector and its utilization of blockchain technology, there still remain barriers to entry in the form of compliance and how to adhere to it. Traditional finance has billions of dollars sidelined, waiting to advance into the age of increased transaction security, transparency and effective monitoring of illicit activities.

However, they would need the help of fiat on-ramps to function as their gateway into cryptocurrency, serving as a vital link between the old and the new.

The role of fiat on-ramps

Fiat on-ramps are essentially the entry points to the cryptocurrency ecosystem. They enable individuals and corporations alike to convert traditional fiat currencies, such as US dollars or euros, into cryptocurrencies like Bitcoin, Ethereum, or stablecoins such as Tether (USDT).


The regulatory background

In the realm of cryptocurrency regulation, the Financial Action Task Force (FATF) stands as a pivotal player. Comprising 39 member nations and jurisdictions, including major financial powers like the US and the UK, the FATF was established in 1989 to combat money laundering, terrorist financing, and other financial threats globally.

The FATF adopts a risk-based approach to regulating Virtual Asset Service Providers (VASPs), which include cryptocurrency exchanges and wallet providers. This approach acknowledges both the innovative potential and inherent risks of cryptocurrencies, particularly in terms of anonymity and illicit usage.

FATF has called on its member nations to align their national AML and KYB regulations with its recommendations. This standardization ensures a consistent global approach to cryptocurrency regulation, promoting international cooperation in combating financial crime.

Member nations are expected to incorporate FATF recommendations into their national laws and regulatory frameworks, ensuring that cryptocurrency service providers, including fiat on-ramps, adhere to AML and KYB measures. Noncompliance carries significant consequences for both nations and businesses within their jurisdictions.


AML and KYB in crypto

AML and KYB are acronyms that stand for Anti-Money Laundering and Know Your Business, respectively. These are compliance processes and regulations that help financial institutions and cryptocurrency service providers verify the identity of their customers and detect suspicious activities.

AML involves monitoring and analyzing financial transactions to identify and report potential money laundering or other illegal activities. KYB, on the other hand, focuses on verifying the identity of businesses. It requires entities to provide details of the business, its directors and UBO’s, company structure and financials to confirm their legitimacy.


Why AML and KYB are crucial for fiat on-ramps

Where there is a transaction by which fiat is converted to cryptocurrency, it is essential that cryptocurrency service providers comply with regulatory requirements. Regulatory authorities, such as the Financial Crimes Enforcement Network (FinCEN) in the United States, require cryptocurrency service providers to implement AML and KYB measures. Failure to comply can lead to severe legal consequences.

Fiat on-ramps will not be able to onboard new clients from traditional financial institutions without the necessary KYB procedures in place. KYB helps ensure that customers are protected from fraud and identity theft. It creates a layer of trust and accountability between the service provider and their customers. Without it, it’s too high of a risk for financial institutions to expose themselves to.

At Gatenox, we recognise the importance of bridging the gap between institutions and the cryptocurrency markets in a manner that seamlessly keeps on top of regulation set out by industry regulators (like FATF). Using our comprehensive 3-in-1 compliance cloud, we ensure that cryptocurrency service providers and financial institutions alike have a robust infrastructure in place that serves and adheres to their compliance requirements of KYC, KYB and AML.

With adoption setting in, the uptake for cryptocurrency exposure is increasing rapidly. Cryptocurrency service providers who facilitate fiat on-ramp will need to ensure they adhere to a compliance-first approach if they want to be in the mix.

Get in touch to witness first-hand how our solution can empower your business to keep on top of cryptocurrency regulation.