What Is KYC, and Why Do Exchanges Ask for Your Documents

KYC (Know Your Customer) is the identity check you go through when signing up for almost any major crypto exchange: uploading a photo of your ID, sometimes confirming your address, and passing a selfie or short video check. It isn't bureaucracy for its own sake — it's how an exchange confirms you are who you say you are, and that its platform isn't being used to launder money or fund criminal activity.

• Basic tier — full name, date of birth, address, a photo of a government-issued ID.
• Higher tier — biometric verification (matching your face to your ID photo), sometimes a live video call.
• For larger amounts — proof of the source of funds and where the money originally came from.
• Screening against PEP (politically exposed persons) and sanctions lists — a required step at every tier.

Requirements in the EU are tightening: under the MiCA regulation, all crypto-asset service providers (CASPs) must be authorized by July 1, 2026, and the expanded KYC rules require verifying the source of funds and wealth for every customer, not just large transactions, Signzy notes. In the US, exchanges are regulated as money services businesses (MSBs) and must maintain AML/KYC programs — and starting in 2026, they're also required to issue users and the IRS a Form 1099-DA.

Skipping this is expensive: in January 2023, Coinbase agreed to pay New York's Department of Financial Services (NYDFS) $100 million specifically over an "immature and inadequate" KYC program — including cases where suspicious activity reports were filed months after the exchange already knew about the problem, CNBC reports. We've already covered the closely related process in detail — AML, and how exchanges vet users for money laundering — as well as why FATF compliance directly determines whether a country stays off the regulator's grey list.

This article is for informational purposes only and does not constitute investment advice.