A study by P.A.ID Strategies found that 68 per cent of the 25 most prominent cryptocurrency exchanges and wallets in the EU and US do not perform identity checks on their clients before allowing them to trade.
The results of the survey, which was commissioned by software company Mitek, show that most exchanges and wallets do not require much more than an email address and a telephone number from clients that wish to trade and do not perform Know Your Customer (KYC) checks.
John Devlin, principal analyst at P.A.ID, said: “Cryptocurrency wallets and exchanges want to enjoy the same trust as the wider traditional financial services, but for this to happen they need to rise above the sometimes-dubious reputation of cryptocurrencies' past and be seen as 'model citizens' of the economy.”
The European Parliament's fifth anti money laundering directive (AMLD5) will come into effect next year and will bring with it a crackdown on lack of identity checks. Crypto exchanges and wallets will be required to adopt the same protocols as normal banking services once it is introduced.
If a platform is found to be involved with money laundering after failing to meet the demands, it could cause irreparable damage to the company's reputation.
“Meeting the regulatory demands ahead of AMLD5 coming into force could go a long way to changing this sector's reputation as being something of a 'wild west',” Devlin continued.
Out of the 25 services included in the study, the identification procedures of 14 exchanges, including Coinbase, Gemeni and Poloniex, and 11 wallets, including Luno, Bonpay and Mercatox, were examined. They were all picked based on the volume of transactions.
Kalle Marsal, chief operating officer of Mitek, said: “Wallets and exchanges want to change perceptions of lawlessness and it's a relatively straightforward fix. Identity verification processes can be simple for the customer and no barrier to signing up.”
“By incorporating systems that are just as future-looking as cryptocurrency itself, exchanges and wallets can be both competitive and compliant with regulatory demands.”