KYC is an acronym for Know Your Customer, and it’s an obligatory process for regulated exchanges everywhere in the world. This is the same thing you do when you open a bank account or go to your country’s driver’s license authority or any other governmental agency. It’s simply a form of identification to protect the client and their funds, know who is using the platform, and conduct the trades. A simpler form of KYC is whenever you put a password or fingerprint on your phone, it’s a form of knowing its customer (for the phone), and whenever that customer wants to access the phone, it’s clear who will use it; therefore their customer and their information is protected. KYC also varies greatly since different amounts of money might not be that sensitive. But every single regulatory authority will need some form of it; some are satisfied with an email, some require a phone number, some will ask for an ID and proof of address, and others might require you to hold it as well. Greater levels of KYC usually grant you more freedom and are a sign that the platform is regulated and compliant with its regulations.

What are AML and CFT, and PEP?

AML stands for Anti Money Laundering, and CFT stands for Combating financial terrorism. The acronyms might differ from region to region. Still, all developed and most developing countries require their regulated platforms to comply with these regulations. AML and CFT checks are done every time you send even the smallest amount of money from your bank or even when you are withdrawing it. You don’t notice it. It could be an atm withdrawal in Bangkok or a multi-million dollar transfer for a property purchase. The check will be done instantly using very complex algorithms. At times, if the algorithms detect anything suspicious, the process might be put on hold until a real human specialized in these activities, usually referred to as a compliance officer, checks the destination account along with the reason for transfer. Sometimes they might ask for proof of funds as well. Nothing to be concerned with, just a quick check to prove the algorithm wrong.

PEP refers to a Politically Exposed Person. It might shock you, but politicians are actually facing more checks and regulations in most developed countries than a normal person. This is to prevent them from accepting bribes or sudden huge amounts of cash.

What’s the difference between decentralized exchange and centralized exchange?

Decentralized exchanges, usually referred to as DEFI, are exchanges that don’t deal with Fiat currency. Fiat is the money you hold in your bank account, the currencies issued by central banks and governments. Decentralized exchanges only deal with crypto to crypto trades and exchanges and will not require KYC because they are not in the financial system yet. That being said, some of their liquidity providers will still require some documents if the amount of crypto is huge or its origin wallet is suspicious or blacklisted. Centralized exchanges provide all of that as well as fiat currencies. They might provide financial instruments like leverage or futures contracts as well. But their biggest advantage is that you can deposit and withdraw money instantly and legally from your bank account without having to worry about anything.

Choosing a crypto exchange is the first step of the way in the crypto market, even before learning about cryptocurrencies. Choosing a regulated exchange in a reputable financial market like the UK and Australia will put your mind at ease about your funds’ safety and later regulation compliance like depositing its profits into your bank account. So you can trade at ease and with confidence.