Initial Coin Offerings (ICO) are also referred to as “token sales.” ICO is becoming increasingly important as a means for blockchain firms to increase funds for growth and expansion. ICOs are often linked to “kickstarters” or “crowdfunding tactics,” including the firms offering tokens that can grant multiple kinds of potential benefits to their users. Tokens are generally classified into two types:
1. Utility Tokens: These tokens permit holders to gain entry and use the firm’s products and benefits, as well as the right to vote on organization or project decisions.
2. Security Tokens: As compared to utility tokens, these tokens grant asset ownership in an organization or campaign.
Many authorities around the globe are now classifying all tokens made available via ICOs as assets. This is crucial from a regulatory point of view, as engaging in securities entails obeying stringent rules aimed to reduce the threat of fraud and embezzlement which is way too common in the asset trading business.
Importance of KYC Compliance in ICO
The need for KYC in ICO is very difficult to conclude because rules vary from market to market. A frequently used clinical choice is to err on the side of vigilance and knowingly and willingly guarantee that KYC measures are implemented and are a part of a strong anti-money laundering protocol. In this situation, automated KYC solutions can help.
Stay in front of regulators
Regulatory bodies of financial sectors are continuously evolving and developing new policies that govern VASPs, many of the world’s largest markets are tilting towards categorizing all tokens provided in ICOs as securities. Some policymakers also bar buyers from specific jurisdictions, so the KYC course of action must be capable of handling these exemptions on its own.
Complying with KYC for audit and tracking tokens
Recognizing who is busy with the token is crucial for tracking and determining what happens to the token in the long term. Countries like the United States have laws regarding how long security must be kept before it could be marketed again, so recognizing your clients and knowing where they reside is crucial for compliance.
Building trust with banks
A well-planned and effective KYC process at the time of token launch will make it convenient to operate with banks and the finance industry. This type of compliance during the launch event will ensure that your campaign is legitimate. Regulatory bodies will be open to ICOs when they know that KYC rules and regulations were followed.
Improving public image
Everyone is familiar with the raging hype about ICOs, and when it is not followed by a proper KYC process, it makes for a safe haven for bad actors. So to tackle this factor companies communicate with the public about their financial structure, their plans, correlated threats, and all the other important information associated with ICO, that way the public’s trust in your token sales will improve. Because organizations and the public will feel a lot safer knowing that “know your customer” steps were followed at the time of the launch and the excessive information provided by the company about the coin will increase the number of potential customers.
Increasing the Brand Reach
The help of voluntary AML and KYC compliance will allow your ICOs to acquire a wider audience and introduce your ICO in a larger market by hitting more regions. Proper AML and KYC processes will also help you gather big investors.
The long game
In order to stay longer in the market than your competitors and companies that want to be successful over the long run, rather than just simply taking the money and run, must accept the actual legislative structure and fully comply. The preliminary crypto-asset and its oversight contract’s layout and protection can be used to create legitimacy.
Because of the fear of embezzlement and fraud, governing bodies in many regions are charging harsh punishments if the ICO starts to smell like security. “We will hold accountable foreign-located money transmitters, including virtual currency exchangers that do business in the United States when they willfully violate U.S. AML laws,” says Jamal El-Hindi, who is the acting director of FinCEN
Compliance with AML/KYC regulatory requirements, even if it is not presently authorized, covers a diverse range of benefits to the distributing firm and its sponsors. As a result, forward-thinking institutions are using the online ID validation process during ICO sales to:
- Authenticate the sponsor’s identity
- Source of the business of your sponsor, and monitoring transactions
- Evaluate the customer’s risk profile, to determine if they can be a part of fraudulent activities or not
Execution of the KYC process in initial coin offerings regarding anti-money laundering is very crucial. It majorly focuses on the safety of the ICOs and makes sure that they are protected by reducing the fraud risks and keeping the bad actors away. This defensive procedure helps you run your business in a translucent manner.