Unraveling the Complexities of KYC for Digital/Crypto Wealth Funds and Custodians

Crypto wealth funds and custodians are specialized financial professionals who help individuals, businesses, and institutions manage their cryptocurrency investments. They provide a range of services to ensure that investors get the most out of their crypto portfolios, from portfolio management and asset allocation to tax planning and compliance.

By leveraging technology-driven solutions such as artificial intelligence (AI) algorithms, these experts can provide access to customized investments tailored to each investor’s unique needs. 

As the industry continues to evolve and become more complex, cryptocurrency wealth fund managers will become increasingly important for helping investors navigate this new world of digital assets. 

Cryptocurrency wealth fund managers are responsible for carrying out strategic and worthwhile investments in cryptocurrencies like Bitcoin or Ethereum. This includes researching different coins or tokens, evaluating risk tolerance levels, creating diversified portfolios with appropriate asset allocations according to individual goals and preferences – all while keeping an eye on market trends so they can effectively execute investments, or to advise their clients accordingly when it's time to make buy/sell decisions. 

Wealth managers also offer guidance on which exchanges or trading platforms may be best suited for particular investment strategies depending on factors such as speed of execution or liquidity requirements. 

In addition to offering traditional advice about investing in cryptocurrencies, custodians also provide services related to the secure storage of crypto assets. This is especially important in light of the high-profile hacks and scams that have occurred in the industry. 

Crypto custodians are well-versed in security protocols such as cold storage wallets or multisig addresses and ensure private keys remain safe from malicious actors. They can also take extra measures such as setting up automated backups or using trusted third parties to help protect investors’ digital assets.

KYC Requirements for Crypto Wealth Funds & Custodians

Crypto wealth funds and custodians must carry out Know Your Customer (KYC), Know Your Business (KYB), and other Anti-Money Laundering (AML) checks on their clients to reduce the risks of financial crime. KYC, KYB and AML checks are an essential part of any digital or traditional financial services institution's risk management strategy, as they help to reduce the risk of fraud and other illegal activities. 

KYC refers to a set of procedures and processes that involve verifying the identity of customers before allowing them to access a service or product. This is done by collecting and verifying information about the customer such as name, address, date of birth, occupation and passport details. This helps ensure that customers are who they say they are and that there is no suspicion or evidence of criminal activity associated with them. 

KYB is a similar process that is applied to corporate customers. It focuses more on understanding the customer’s business activities, such as assessing its operations, country risk, product risk, sources of income, ultimate beneficial owners(s) (UBOs) and areas of expertise in order to determine whether the customer is likely to engage in — or be used for — money laundering or other financial crime activities. 

AML checks are also conducted by crypto wealth funds and custodians by screening their customers against international watchlists of individuals associated with sanctions, PEP, adverse media, terrorist activities before offering their services — as part of their broader AML compliance programs. 

These checks help to identify suspicious behavior so that further investigation can be undertaken if necessary. By conducting AML checks, crypto wealth funds and custodians can better protect themselves, their clients and the wider public from financial crime. 

It is essential for crypto wealth funds and custodians to carry out KYC, KYB and AML checks on their clients in order to detect any potential criminal activity at an early stage. 

Implementing a robust KYC/KYB/AML program can also help them meet regulatory requirements set out by global authorities such as the Financial Action Task Force (FATF) which require organizations offering financial services — including Virtual Asset Service Providers (VASPs) — to take appropriate steps towards preventing money laundering or terrorism financing activities associated with their products or services. 

It is therefore important for crypto wealth funds and custodians to ensure that adequate KYC/KYB/AML processes are in place in order to protect themselves and their customers from any harm caused by financial crime.

What kind of KYC/KYB checks can Crypto Funds and Custodians carry out?

Using automated KYC onboarding technology, Crypto Funds and custodians can easily carry out a comprehensive suite of KYC/KYB/AML checks on their potential clients and create uniform and consistent track records that can be easily accessed in the event of an audit. 

Some of the most relevant checks that crypto fund managers and custodians apply include: 

• ID Document Verification (IDV) — this process includes automated scans of documents to ensure they are authentic and valid, as well as facial recognition checks to ensure the person submitting ID documents is who they say they are. IDV can also include Passive Liveness checks – a relatively new process that is able to verify whether an individual taking part in an onboarding process is in fact the individual being presented in an uploaded selfie image or video – and not an imposter or fabrication.

• AML Screening – checking an onboarded individual or entity name against a comprehensive selection of global watchlists that include sanctioned entities, Politically Exposed Persons (PEPs), and references in adverse media.

• Crypto Wallet screening – For crypto funds, understanding the history of a wallet, as well as other key credentials, is a critical step for mitigating the risk that it is a conduit for money laundering and other financial crimes.

• Corporate structure visualization – Using technology such as KYC-Chain’s Xmass tree function can allow crypto funds and custodians to quickly understand the corporate relationships and ownership structures of their corporate clients. 

• Automated User Onboarding Restrictions – Many crypto funds need to restrict access to customers from certain countries and jurisdictions for a wide range of reasons – from complying with global sanctions to tax planning and steering clear of certain regulatory regimes. A robust automated KYC process will be able to filter eligible customers according to where they or their main place of business is. 

• Risk Scoring – Once an individual or corporate customer’s identity and credentials have been established, an automated KYC tool will assign a risk score to that investor. This score will then determine whether to automatically grant them access to the crypto fund or custodian’s services, to apply further checks on them, or to reject them.

• Enhanced Due Diligence (EDD) – For potential customers that have been determined to have a significant risk score, EDD processes can be applied that do not necessarily require human intervention from compliance teams. However, many KYC automation tools also provide customizable options for high-risk subjects to be forwarded to a human compliance team, ensuring that restrictions on investment are checked and justified. Using KYC-Chain’s new Manager Fill function, compliance managers can also easily edit or delete customer applications manually, allowing for full compliance with identity protection laws such as the GDPR. 

• Ongoing Monitoring – Automated KYC solutions should offer ongoing monitoring capabilities for onboarded customers. Risk profiles and status can change after a company has started offering services to a customer, so it is important to keep track of any changes that can affect the level of risk they pose from both a financial crime and compliance perspective. 

Automated Onboarding with KYC-Chain

KYC-Chain’s end-to-end workflow solution provides customizable and dynamic onboarding solutions for a wide range of companies and sectors. Our technology allows our clients to efficiently and securely onboard customers while remaining compliant with diverse global regulations. 

Are you looking for a KYC solution for your crypto fund? Get in touch and we can arrange a demo.