In a recent report by London-based regulatory technology (Reg-tech) company Coinfirm, only 14% of more than 200 cryptocurrency exchanges are actually licensed by regulators. The startup, which tracked 216 exchanges, found out that these exchanges accounted for more than 90% of global crypto activity.
Coinfirm grouped the exchanges into seven different categories for analytical purposes. The categories include Customer Due Diligence (CCD) procedures, Know Your Customer (KYC) compliance, license/authorization, Anti-money Laundering (AML) compliance, Senior Public Figures, Sanctions, Jurisdiction, and Negative and Adverse media. The report shows that about 40% of the analyzed exchanges do not support the trade of fiat currencies meaning that users only deposit and withdraw funds in form of cryptocurrencies. Of the remaining 60% that do support fiat, less than a quarter (23%) conducted full KYC procedures on their customers.
In the jurisdictions category, the report further classified the different countries in terms of risk levels. There were three levels which include high risk, medium risk, and low-risk jurisdictions. Of the countries that ended up in the high-risk category, Russia, Ukraine, Iran, and several African countries made the cut. United States, Canada, the UK, China, India, and Saudi Arabia made some of the nations that fell into the medium risk category. Australia and its neighboring island nations made up the lowest risk category.
Binance the leading cryptocurrency exchange by the number of users and average daily adjusted trade volume, is featured in the report as being a high-risk exchange. Binance has been jumping from one jurisdiction to the next in search of regulatory arbitrage. It is now based in Malta, an island state that has been praised for its accommodating cryptocurrency regulatory framework.
So far, however, the popular exchange has not suffered any major security incident. As an added precaution, Binance has enrolled the services of US-based Reg-tech and compliance firm IdentityMind to ensure the security of assets through risk management and regulatory compliance of its service offering.