Nowadays, the market offering various eKYC tools is impressively saturated. As the world of regulation continues to play catch with innovation, those looking to establish compliant digital structures (from centralized exchanges to DeFi protocols) struggle to find the sweet spot of compliance. As our digital world becomes more and more decentralized, participants demand both: anonymous transactions, and accountability for fraudulent actions. Two seemingly opposing requirements. In addition, exchanges, protocols, and other digital platforms world-wide are finding themselves subject to AML/CFTP regulations to counter money laundering and terrorist financing through their ecosystems. eKYC tools are being bought-up in droves by those fearing large fines, lost licenses, negative press, or worse.
But what does the market actually require to ensure security for its participants, minimize the transfer of illicit funds and not stifle innovation? One company says they have the answer.
idclear is looking to bring a tried and tested risk management approach from financial markets to the brave new world of digital assets. The ability to reduce risks of financial crime comes from its mutualized operating model, inspired by clearing houses in financial derivatives markets. When a participant undergoes due diligence for a product or service through idclear, they become “cleared”, allowing them to access any other products or services within the ecosystem without needing to repeatedly undergo the same due diligence processes.
As idclear manages the compliance relationship with each participant (including conducting ongoing monitoring), it negates the need for each protocol or service provider to conduct the same checks against the same underlying data, making the entire process cheaper for everyone and infinitely more efficient.
It is not difficult to see how such an approach can alleviate the compliance headaches of DeFi protocols struggling to comply with regulatory requirements whilst maintaining their decentralized set-up. Equally, crypto start-ups looking to innovate and develop within their market do not want to spend their time – and crucially, money – building and training large compliance teams. Partnering with an organization for whom compliance is their ‘bread and butter’ makes a lot of sense.
The idclear model can give protocols peace of mind in knowing the transactions they are facilitating are compliant under AML/CFTP regulations. In turn, participants get the security that checks have been conducted on both the protocols they interact with, and other participants within them. This greatly reduces the likelihood of bad actors exploiting the market on either side. And ultimately, isn’t this what the market really needs right now?