Customer Due Diligence in Crypto: What Exchanges Must Do to Stay Legal

When you sign up for a crypto exchange, you’re not just creating an account—you’re triggering something called customer due diligence, the process exchanges use to verify who you are and assess risk before letting you trade. Also known as KYC, it’s the backbone of legal crypto operations. Without it, exchanges can’t open bank accounts, face fines, or get shut down entirely. This isn’t about privacy invasion—it’s about stopping criminals from using crypto to launder money, fund terrorism, or run scams.

Every exchange that plays by the rules follows three steps: identify, a process where users provide government-issued ID, verify, checking that ID against official databases, and monitor, tracking transactions for suspicious patterns. These aren’t optional. Regulators like FinCEN, the EU’s AMLD6, and even the U.S. Treasury’s OFAC require them. Miss one step, and you’re not just risking your license—you’re putting users at risk of being caught in money laundering investigations.

Look at the posts below. You’ll see how customer due diligence connects to everything from HSM key management (secure custody needs compliance logs) to Russian sanctions (exchanges like Garantex were targeted for bypassing KYC) and even airdrops (many require verified accounts to prevent bot abuse). Even privacy-focused platforms like FairySwap can’t ignore it—they just handle it differently. This isn’t just a legal box to check. It’s the reason some exchanges survive and others vanish overnight. If you’re trading crypto, you’re already part of this system. Understanding it helps you spot shady platforms, protect your funds, and make smarter choices.