KYC and AML in Crypto Explained: What Exchanges Require and Why
KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements apply to centralized crypto exchanges. Here is what they require, how to comply, and how DeFi operates differently.
Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance are required by law for any financial intermediary serving customers — including crypto exchanges. These requirements exist to prevent terrorist financing, tax evasion, and money laundering.
What KYC Requires
- Identity verification: government-issued ID (passport, driver's license)
- Proof of address: utility bill, bank statement within 90 days
- Source of funds: for large deposits, exchanges may ask for wealth source documentation
- Enhanced due diligence (EDD): required for politically exposed persons (PEPs) and high-risk users
Why AML Matters for Crypto
Blockchain transactions are pseudonymous — traceable but not by default tied to identity. AML compliance requires exchanges to screen wallet addresses against sanctions lists (OFAC, UN), monitor for suspicious patterns (structuring, rapid fund movement), and report suspicious activity to financial intelligence units.
DeFi and Self-Custody: No KYC Required
- Smart contracts have no legal entity — they cannot conduct KYC
- Self-custodial wallets (MetaMask, Steyble) are software tools, not financial intermediaries
- Users bear responsibility for their own compliance with local laws
- Regulatory pressure is building — some DeFi front-ends geo-block sanctioned jurisdictions