KYC

KuCoin agrees to ban New York residents and pay $22 million in settlement

KuCoin users from New York will lose the ability to trade within 30 days and will have their accounts closed within 120 days.

Crypto exchange KuCoin has agreed to pay $22 million to the State of New York and to bar residents of the state from using its platform, according to a stipulation and consent order filed in the New York Supreme Court on Dec. 12.

According to the order, KuCoin admits that it “operates a cryptocurrency trading platform on which users, including users in New York state, can purchase or sell cryptocurrencies which are securities or commodities as defined under the laws of New York state and that Kucoin is not registered as a securities or commodities broker-dealer.” In addition, KuCoin “admits that it represented itself as an ‘exchange’ and was not registered as an exchange pursuant to the laws of New York State.”

KuCoin has agreed to close the accounts of all New York resident users within 120 days and to prevent New York residents from obtaining accounts in the future. In addition, it will restrict access to withdrawals to only within 30 days, leaving the remaining 90 days available for users to withdraw funds.

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T. Rowe Price, WisdomTree join Avalanche subnet for forex testing

If initial tests are successful, the firms will expand their activities into tokenized credit issuance and equities.

Financial market firms T. Rowe Price Associates, WisdomTree, Wellington Management, and Cumberland have joined an Avalanche (AVAX) subnet to test the idea of blockchain-based foreign exchange, according to an announcement from the Avalanche team. The new subnet is called “Spruce,” and is part of Avalanche’s Evergreen Subnet ecosystem.

According to the announcement, institutions will initially use “valueless tokens” on Spruce to ensure they can conduct foreign exchange, or forex, transactions without losing capital. Interest-rate swaps will also be tested early on. Over the long run, successful tests will allow these firms to experiment with further attempts at blockchain settlement, including “the exploration of tokenized equity and credit issuance, trading, and fund management.”

The announcement said that Spruce offers compliance features to help keep institutions within the parameters of the law. Firms that want to use it must first pass Know Your Customer (KYC) verifications, and once they complete this process, they receive non-transferable tokens, or NTTs, identifying them on the network. Their wallet addresses are also whitelisted “at the chain level” after verification.

Will Peck, head of digital assets at WisdomTree, said that he believes Spruce will be an important step in bringing greater efficiency to traditional financial transactions:

“We believe tokenization and blockchain will play an important role in financial services going forward. Avalanche Spruce provides an opportunity to further explore the potential efficiencies and benefits of on-chain trading and settlement with other financial institutions. We are looking forward to experimenting in this EVM-based testing environment.”

On April 6, Avalanche announced the launch of the “Evergreen” subnet protocol, which allows institutions to create customized blockchains with compliance features. At the time, a representative from Ava Labs said these subnets were needed because previous solutions, such as Corda and Hyperledger, were not interoperable enough for the needs of large institutions.

Related: Deutsche Boerse, Swisscom Settle Securities with Corda and Hyperledger

Spruce is one of two Avalanche Evergreen subnets launched since the protocol was released and listed on the Avalanche website. Intain, an Evergreen subnet focused on structured finance, is the other.

A January joint study from Uniswap and Circle argued that the cost of forex could be reduced by as much as 80% by putting transactions on a blockchain network. Experts such as Ralf Kubli of the Casper Foundation have argued that tokenization may help to prevent a future financial crisis.

Jane Street, Tower Research and Radix are Binance’s ‘VIP’ clients in CFTC suit: Report

The firms were cited anonymously in the CFTC’s complaint describing Binance’s alleged facilitation of U.S. clients.

Trading firms Jane Street Group, Tower Research Capital and Radix Trading have been reportedly identified as Binance’s three “VIP” clients that were anonymously cited in the recent lawsuit filed against Binance by the United States commodities regulator.

According to an April 5 Bloomberg report citing “people familiar with the matter,” Radix Trading is “Trading Firm A” as described in the Commodities Futures Trading Commission’s (CFTC) suit, while Jane Street was “Trading Firm B” and Tower Research was “Trading Firm C.”

The firms on the CFTC’s list were examples of U.S. clients allegedly able to access Binance.

The Wall Street Journal (WSJ) first reported on March 28 that Radix Trading was “Trading Firm A.”

Radix co-founder Benjamin Blander told the WSJ in a March 30 report that he believed the firm acted legally even when trading with Binance’s offshore entity.

The claimed “VIP” treatment from Binance included lower transaction fees and faster trading services, the CFTC said in the filing. The firms provided Binance with liquidity on the exchange, and Binance gained the corresponding trading fee revenues.

It was part of a strategy that “actively facilitated violations of U.S. law” by helping U.S. trading firms evade Know Your Customer compliance standards, among other things, the CFTC alleged.

Binance allegedly enabled Radix to sidestep compliance controls by providing them information on accessing Binance.com through a virtual private network to obscure its IP address.

Related: Dubai regulator demands Binance provide info on ownership, governance: Report

The CFTC claimed the trading violations to have come about as Binance prioritized “commercial success over compliance with U.S. law.”

However, Binance CEO Changpeng “CZ” Zhao vehemently denied the claims of compliance and market manipulation violations in a follow-up post on March 28.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Masa announces soulbound ID tokens for Coinbase’s Base Network

The token protocol can be used for a wide variety of applications, including membership badges, loyalty programs, decentralized captcha bots, and credit underwriting.

Masa Finance’s soulbound tokens will soon be available on Coinbase’s Base network, according to an April 4 announcement from Masa Finance. The new tokens will allow users to link identifying and reputational characteristics to their wallet addresses, making credit underwriting possible on the blockchain, the company said.

Masa had previously released its Soulbound Token protocol for Ethereum and Celer.

In its announcement, Masa stated that the protocol can be used for a wide variety of applications, including human-readable domain names, membership badges, loyalty programs, achievement badges, decentralized captcha bots and more.

It will release a Base SBT Developer Toolkit within the coming weeks that “will support the seamless deployment and interaction with SBTs on Base,” which will include a quickstart guide, Masa command line interface, software development kit, REACT developer tools and examples of how to build applications using Masa soulbound tokens.

Related: Coinbase wants devs to build inflation-pegged ‘flatcoins’ for ‘Base’ network

Coinbase is the largest centralized crypto exchange in North America. It launched its Base Network testnet on Feb. 23, planning to implement it as an optimistic rollup layer 2 for Ethereum. On March 23, Coinbase issued a Request for Builders asking developers to create several protocol types for Base, including an on-chain reputation system.

In response to this request, Masa began developing a Base version of its soulbound protocol, the company said in its announcement.

The announcement of Base Network’s creation has contributed to bullish sentiment within the Ethereum community, with some users expressing hope that it will lead to greater onboarding of Coinbase users to Ethereum. In an interview with Bloomberg Radio, Coinbase CEO Brian Armstrong claimed that “centralized players” on Base will need to implement some form of identity verification for users.

DeFi KYC: Not an issue as ‘99% have nothing to hide,’ industry execs say

Traditional finance observes “money laundering happening every day” despite rigorous KYC measures, according to DeFi industry execs.

DeFi execs at the World of Web3 (WOW) Summit in Hong Kong argued that implementing “Know Your Customer” (KYC) measures will tackle the “biggest issue” in decentralized finance (DeFi), which is hackers laundering millions of stolen funds into “clean money.”

During a panel session at the summit on March 29, titled “Blockchain Security to Smart Compliance: AML & KYC Solutions in DeFi,” industry leaders endorsed KYC in DeFi as a solution to tackle Anti-Money Laundering (AML) issues.

Dyma Budorin, CEO of smart contract auditing firm Hacken, warned of the prevalence of tools readily available to hackers to “launder the money” stolen from DeFi platforms, which he described as the “biggest issue” in the industry.

He explained that hackers can easily steal millions of dollars and launder the funds into various wallets “to make clean money again,” making it difficult to track the source of the funds.

“KYC is about transparency and accountability. I don’t think it’s an issue for a majority of people. I’m sure 99% of people don’t have things to hide. I’m happy to see it as part of our world.”

However, Victor Yim, the head of fintech at Hong Kong’s incubator for entrepreneurship, Cyberport, suggested that KYC alone won’t solve all AML problems.

Yim explained that even in traditional finance, where KYC measures are prominent, “there is still money laundering happening every day.”

However, he believes KYC measures will make a “better tomorrow” for the DeFi industry, adding that it will require a collective effort, including “regulators, policy, bureau and other players,” to execute successfully.

Related: Binance launches internal investigation following KYC bypass rumors

Yim cited the concept of “anonymous traceable” as an example of a balance between anonymity and compliance, with individuals remaining anonymous unless called upon by law enforcement, adding that it will “protect the good people while still getting the bad people.”

Alexander Scheer, the founder of zkMe, emphasized that different mechanisms should be used for different solutions, as crypto mixers, for example, “need to be handled completely differently” to DeFi front-ends, and on- and off-ramps.

Scheer also touched on regulations, stating that the DeFi industry should proactively take the lead and “front run” regulations before they are imposed by regulators.

Top 7 legal and compliance jobs in the crypto market

Explore essential skills for top legal and compliance jobs in the crypto market.

Cryptocurrencies are a rapidly growing market that is changing how people invest, buy and sell goods and services, and transfer money. However, with the growth of this market comes an increasing need for legal and regulatory compliance, particularly concerning issues such as money laundering, fraud and data protection.

As a result, there is a demand in the cryptocurrency sector for legal and compliance specialists. The positions listed below are just a few examples of the various legal and compliance positions available in the cryptocurrency sector. Each one is crucial to ensuring that the market functions fairly, openly and lawfully.

Compliance officer

A compliance officer in the crypto market is responsible for ensuring that the company complies with all relevant laws and regulations, including Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. 

Knowing the relevant laws and regulations, having strong analytical and problem-solving abilities, and having the capacity to effectively interact with internal and external stakeholders are all necessary qualifications for this position.

Legal counsel

A legal counsel in the crypto market provides legal advice and support to the company on a range of legal issues, including regulatory compliance, contracts, intellectual property, and data protection.

Legal counsels in the crypto world require unique skills due to the complex and evolving nature of the cryptocurrency market. This also entails technological and legal skills. Legal counsels need to know the rules and legislation that apply to cryptocurrencies and other digital assets, as well as the underlying technologies like blockchain and smart contracts. Additionally, they must be able to handle the dynamic regulatory environment of the cryptocurrency business.

They must also have exceptional analytical and problem-solving abilities to decipher complicated legal and technical data, giving clients clear and succinct advice. Additionally, legal counsels must have strong communication and negotiation skills to represent clients effectively in legal proceedings or negotiations.

Compliance analyst

A compliance analyst in the crypto market is responsible for monitoring the company’s compliance with regulatory requirements, conducting risk assessments, and developing and implementing compliance policies and procedures.

Skills required for this role include strong analytical and problem-solving skills, knowledge of relevant laws and regulations, and the ability to work independently and as part of a team.

KYC/AML analyst

A KYC/AML analyst checks consumers to ensure they adhere to AML and KYC standards in the crypto market. KYC/AML analysts in the crypto market require attention to detail, knowledge of regulations, risk assessment, investigative skills, data analysis, and communication skills to ensure compliance with Anti-Money Laundering and Know Your Customer requirements.

Related: What is KYC, and why do crypto exchanges require it?

Regulatory affairs manager

A regulatory affairs manager in the crypto market is responsible for monitoring regulatory developments, analyzing the impact on the company and developing strategies to ensure compliance. 

Regulatory affairs managers in the crypto industry require skills such as adeptness with compliance frameworks, knowledge of regulatory policies, proficiency in navigating legal requirements and the ability to develop strategic solutions to meet regulatory obligations.

Chief compliance officer

The chief compliance officer in the crypto market is responsible for overseeing the company’s compliance function, ensuring that the company complies with all relevant laws and regulations, and developing and implementing compliance policies and procedures.

Related: How are metaverse assets taxed?

Chief compliance officers in the crypto market require skills such as leadership, stakeholder management, strategic planning, risk assessment, and adeptness with compliance frameworks and regulatory policies to ensure effective compliance management and risk mitigation.

Data protection officer

A data protection officer in the crypto market is responsible for ensuring that the company complies with data protection laws and regulations, such as the General Data Protection Regulation (GDPR).

Data protection officers in the crypto industry require advanced knowledge of privacy regulations, expertise in data governance, proficiency in implementing security protocols, and the ability to ensure data confidentiality, integrity and availability.

Binance launches internal investigation following KYC bypass rumors

Following allegations that Binance employees and volunteers have helped users bypass KYC protocols, the crypto exchange says it is launching an internal investigation.

A recent CNBC investigation claimed that Binance employees and volunteers were assisting Chinese users in bypassing Know Your Customer (KYC) and other security protocols. 

Speaking to Cointelegraph, a spokesperson from Binance stated that employees are “explicitly forbidden” from supporting users in circumventing any laws or policies. The spokesperson also said the company is taking action following the recent allegations.

“We have launched an investigation into employees who may have violated our internal policies including wrongly soliciting or making recommendations that are not allowed or in line with our standards.”

They went on to say that Binance has implemented “advanced detection tools” that allow the exchange to crack down on users in restricted jurisdictions, along with actively blocking VPNs from said areas.

According to the exchange, it is “extraordinarily rare” for workarounds to be possible. Binance claims to have “multiple manual and AI-driven processes” that help prevent users from bypassing critical security procedures.

“Furthermore, users who are found to have used any sort of workaround to avoid local law are restricted immediately.”

Changpeng Zhao, the founder and CEO of Binance, has made no comment on the situation at the time of writing, despite his regular commentary on social media. Previously, Zhao took to Twitter to address rumors that had spread via the Chinese messaging platform WeChat.

Related: Binance.US, Alameda, Voyager Digital and the SEC — the ongoing court saga

Prior to this incident, Binance had announced in February that it would delist low-trade-volume nonfungible tokens that were listed before the implementation of its new KYC rules. 

In October 2022, the exchange was hit with allegations that it had “swerved scrutiny” from regulators in the United States and the United Kingdom.

Previously, Binance has been open about its employee policies. In January, the exchange confirmed that its employees must adhere to a 90-day period prior to trading any digital assets to prohibit insider trading.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Binance employees allegedly help customers in China bypass KYC controls

A new investigation claims that users around the world are manipulating Binance’s billion-dollar security protocols through inside help.

Update: Binance told Cointelegraph that it is launching an internal investigation into the matter.

Binance, the world’s largest cryptocurrency exchange, has made significant efforts to be a leader in transparency in the industry since the FTX scandal. However, a new report claims that Binance insiders are allegedly helping users bypass security protocols. 

According to a CNBC investigation, employees and volunteers at Binance have allegedly been aiding customers in China to subvert the exchange’s Know Your Customer Controls (KYC).

The report points to Binance’s official Chinese-language chat rooms, in which more than 220,000 users were registered. There, users are reportedly able to access shared messages with techniques to bypass the exchange’s KYC, residency and verification protocols.

These messages allegedly stemmed from accounts that were identified as employees of Binance or trained volunteers who go by the title “Angels.”

Techniques shared included forging bank papers, attesting false addresses and other simple system manipulations. A Binance spokesperson is reported saying:

“We have taken action against employees who may have violated our internal policies, including wrongly soliciting or making recommendations that are not allowed or in line with our standards.”

The co-founder of Binance, Changpeng Zhao, who is usually active on social media, has made no comment at the time of writing. Zhao previously took to Twitter to denounce rumors spread on the Chinese WeChat platform.

A Binance spokesperson responded to Cointelegraph saying that the company is launching an internal investigation regarding the KYC rumors. 

Related: India subjects crypto transactions to Anti-Money Laundering law

This development surfaces while China continues to implement a strict ban on cryptocurrencies, which began in 2021, with crypto exchanges outlawed in 2017. Chinese users evading KYC rules to access Binance could face repercussions if uncovered.

Some have called on the Chinese government to reconsider the crypto ban, though regulators have not budged.

Meanwhile, Chinese officials continue apace with plans for a central bank digital currency, the digital yuan. Recently, millions were spent on adoption efforts. 

Coinbase CEO hints its new layer-2 network could include AML measures

Brian Armstrong said centralized firms have a responsibility to monitor transactions and carry out Anti-Money Laundering checks.

Coinbase CEO Brian Armstrong has hinted that the firm’s new layer-2 blockchain network Base may be subjected to transaction monitoring and Anti-Money Laundering measures at launch.

In an interview with Joe Weisenthal on Bloomberg Radio on March 6, Armstrong acknowledged that Base has some centralized components today, adding that “it will be more and more decentralized over time.”

However, he then suggested that there will be transaction monitoring and AML requirements for users of the new layer-2 network.

He suggested that Coinbase will have a responsibility in terms of transaction monitoring in the early days, adding:

“I think that the centralized actors are the ones that are probably going to have the most responsibility to avoid money laundering issues and having transaction monitoring programs and things like that.”

Armstrong’s comments were also highlighted up by decentralization advocate Chris Blec in a Twitter post on March 7.

Base is an Ethereum layer-2 network that offers a secure, low-cost, developer-friendly way for users to build decentralized apps, according to Coinbase.

It is being developed with the “OP Stack” used by Optimism, which will enable high-speed transactions on Ethereum. Base was unveiled on Feb. 23 and is currently in the testnet phase. Coinbase has yet to provide a mainnet launch date but it is expected in Q2, 2023.

Blec previously warned about Coinbase’s latest layer-2 offering in a blog post released in late February, five days after the firm announced Base.

He said that layer-2 infrastructure was quite centralized because they use “sequencers,” which are “nodes that construct and execute L2 blocks while transmitting users’ actions from L2 to L1.”

Coinbase, a licensed money transmitter, will be operating the sole sequencer for Base. This raised the question of whether Base would also legally require Know Your Customer (KYC) requirements, making it the first-ever L2 to do so.

Related: L2 is crucial to Ethereum decentralization, censorship resistance, says researcher

Coinbase hasn’t confirmed or denied whether Base would be implementing KYC and AML measures. Blec commented:

“Isn’t it ironic that ‘DeFi’ is heading toward being controlled by the entities that it was originally supposed to be battling?”

However, the crypto community and Ethereum advocates have said Base was a “massive confidence vote” for Ethereum.

Cointelegraph reached out to Coinbase for comment but had not received a response by the time of publication.

Pakistan banks agree on blockchain-based KYC system development

The blockchain-based national eKYC banking platform aims to strengthen Anti-Money Laundering capabilities while countering terror financing.

The Pakistan Banks’ Association (PBA) — a group of 31 traditional banks operating in Pakistan — signed off on developing a blockchain-based Know Your Customer (KYC) platform. 

On March 2, the PBA signed the project contract to develop Pakistan’s first blockchain-based national eKYC banking platform, as reported by the Daily Times. The move aims to strengthen Anti-Money Laundering capabilities while countering terror financing — an initiative led by the State Bank of Pakistan (SBP).

The member banks include international establishments such as the Industrial and Commercial Bank of China, Citibank and Deutsche Bank. Moreover, the blockchain platform will improve operational efficiencies, primarily aimed at improving customer experience during onboarding.

The Avanza Group has been tasked to develop the blockchain-based eKYC platform named “Consonance,” which will be used by member banks to standardize and exchange customer data via a decentralized and self-regulated network. However, the customer details will be shared based on consent — allowing banks to assess existing and new customers.

Related: India explores offline functionality of CBDCs — RBI executive director

Joining other countries in the race to develop a central bank digital currency (CBDC), Pakistan recently signed new laws to ensure the launch of a CBDC by 2025.

Global CBDC initiatives overview. Source: Atlantic Council

The SPB will issue licenses to electronic money institutions for CBDC issuance. “These landmark regulations are a testament to the SBP’s commitment toward openness, adoption of technology and digitization of our financial system,” said Deputy Governor of SBP Jameel Ahmad.