Sumsub at Consensus 2023: KYC for crypto in the age of compliance

Rick Steves

Consensus 2023 by CoinDesk, which took place on April 26-28 in Austin, Texas, once again brought together all sides of DeFi, blockchain, Web3, and the metaverse to one of the world’s longest-running crypto, blockchain, and Web3 events.

Consensus 2023

This year’s conference included world-class speakers from fintech, blockchain, and TradFi, as well as regulatory and lawmaking bodies, such as Circle’s Jeremy Allaire, Custodia Bank’s Caitlin Long, CFTC’s Christy Romero, Yuga Labs CEO Daniel Alegre, Edward Snowden, and even William Shatner.

Consensus 2023 was announced by CoinDesk as a call to action for developers, investors, founders, policymakers, brands, and others to come together and find solutions to crypto’s thorniest challenges and finally deliver on the technology’s transformative potential. The event came in the wake of the most tumultuous year in crypto history and served as an opportunity to reflect and rebuild.

ID fraud in crypto results from tech know-how and low income

Besides the collapse of some of the biggest names within the crypto space, which had much to do with fraud and non-compliance overall, identity fraud continues to cripple the industry and needs to be tackled urgently as regulators across the globe no longer look the other way.

A recent report found that 55.8% of all identity fraud occurs in just five countries: Vietnam, Nigeria, USA, Bangladesh, and Pakistan. Why is crypto so prone to fraud and how can the United States – so rigorous in its enforcement – have so much ID fraud?

Ilya Brovin & Nikolai Isayev
Ilya Brovin & Nikolai Isayev

FinanceFeeds Editor-in-Chief Nikolai Isayev attended Consensus 2023 and had the opportunity to speak with Ilya Brovin, Chief Growth Officer for Sumsub, about the questions above and more.

Ilya Brovin reminded Nikolai that the crypto industry originally started with no KYC and historically, didn’t invest much in compliance, hence so much fraud historically. The industry, he says, is now much closer to TradFi in terms of KYC because of the pressure from regulators.

Why are those five countries in particular home to the majority of fraud in crypto? Brovin believes that the combination of high quality technological education with low incomes makes a country more prone to this sort of crime.

Crypto Travel Rule: Problem is not many are aware of it

Sumsub is the one verification platform that secures the whole user journey with KYC, KYB, transaction monitoring and fraud prevention solutions that relies on machine learning and artificial intelligence. The platform supports 6,500 document types from over 220 countries and territories at a time of urgency as digital asset firms need to comply with the Crypto Travel Rule (FATF Recommendation #16).

The rule requires VASPs to obtain, hold and transmit required originator and beneficiary information, immediately and securely, when conducting VA (Virtual Asset) transfers, therefore helping to prevent criminal and terrorist misuse.

Sumsub, which already caters to more than 800 crypto-related companies, has recently launched a solution for such a complex multi-jurisdictional issue. “The Travel Rule is an emerging topic. The number one problem is that not many are aware of it. We serve over 800 crypto companies and a lot of them don’t know what it is.”

“Regulatory requirements and their phasing are different around the world. Firms don’t know to whom they should send the data in order to be compliant. In the EU, personal data must comply with GDPR while the other side doesn’t have to. A lot of discrepancies drive a lot of the difficulties”, Ilya Brovin explained.

Sumsub recently launched The Complete Guide to the Travel Rule 2023 precisely to help firms learn more about how and when to comply with the FATF rule implemented in each jurisdiction.

Sumsub’s open approach is critical for VASPs

The regtech firm is protocol-agnostic and operates in an open-architecture system in order to connect with all kinds of solutions, partners, and networks and exchange data. That is why, Brovin argues, that Sumsub is a better option than most competitors or an in-house compliance team.

Going fully digital for onboarding customers, especially in the digital asset space, sounds like the obvious thing to do but the reality is…complicated. “I compare document-based ID with cash: inconvenient, difficult to deal with, but not everyone has the same electronic methods of payment. So you’ll always have to default to something that’s universal: document-based ID. We operate in multiple regions, we offer local methods that are more convenient for local users. If it doesn’t work well, it goes to default: full coverage of documents”, he added, as he pointed to the many difficulties compliance teams have to deal with, including different languages, alphabets, types of documents and local regulatory rules.

From over 800 crypto companies using Sumsub’s solutions, 500 are VASPs or likely to be regulated as such, Ilya Brovin stated, as he argued that provides Sumsubwith a head start against other regtech providers, namely in regard to accessingh the long tail of VASPs     . The point, again, is that closed regtech solutions put high barriers on entry into the system, which means that a lot of small and medium VASPs will face hurdles to get into consortia like TRUST.

Sumsub’s open approach allows the firm to be quick and nimble. An example is that it already integrated TRP (Travel Rule Protocol), an open-source standard for exchanging crypto-asset transfer-related data between virtual asset service providers (VASPs). TRP was created in 2020 by Standard Chartered (Zodia), ING and BitGo, and is now the leading decentralized protocol for compliance with the FATF Travel Rule Recommendation 16.

Self-sovereign IDs are in conflict with KYC rules

The blockchain industry has been working non-stop in new decentralized solutions for nearly anything and everything, including KYC, such as the self-sovereign identities (SSI),  a blockchain-powered approach to digital identity that gives individuals control over the information they use to prove who they are to websites, services and applications across the web.

Although self-sovereign IDs show promise, “the problem is that regulation doesn’t catch up with the technology”, Brovin said, reminding that blockchain is everywhere but regulation is local, and “it’s not there yet”. He offered a middle ground: centralized storage of PII, but using the blockchain for permitted access to the data.

“Trend is towards more regulation. Be proactive”

Sumsub’s Ilya Brovin also spoke about the different levels of regulatory proactivity, with pros and cons to each approach. As for the United States, complaints about the lack of regulation are fair to a degree, he said, but regulators won’t let anybody deal with money transfers, and do it completely unregulated. “You have to take this trend seriously and not rely on the absence of regulation”, he continued as he quoted a former law professor who said “Don’t think of the law today, but think how the law will change in 10 years and plan for that”.

Can Sumsub ensure crypto companies in the United States don’t get by the SEC or other regulator? “We give all the tools that companies need to be compliant and not be       prosecuted but it’s still their responsibility to apply those tools to whatever standard they want to set. Crypto guys have to accept that KYC and compliance in general is a must for them to be on the safe side.”

To finish up the interview, Nikolai Isayev asked about the recently approved regulatory framework in the European Union, MiCA. That, and the UK’s amendments to the Money Laundering and Terrorist Financing Regulations that start to be enforced in September 2023, “are the major events players in the crypto space have to pay attention to”, Brovin said. “It’s better to have some regulation and know the rules rather than have nothing. The trend is towards more regulation. Be proactive.”

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