Exchange Due Diligence refers to the comprehensive investigative process undertaken by cryptocurrency exchanges to assess and verify the legitimacy, security, and regulatory compliance of their operations and listings. This process involves evaluating counterparty risks, conducting thorough Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, and reviewing the technical and financial integrity of listed digital assets. It serves to protect the exchange and its users from fraud, illicit activities, and operational vulnerabilities. Robust due diligence is essential for maintaining market integrity and regulatory standing.
Context
The importance of Exchange Due Diligence has been underscored by recent market events, leading to increased scrutiny from regulators and investors alike. Current discussions center on the depth and breadth of these checks, particularly regarding the listing of new tokens and the monitoring of ongoing activities. A key debate involves standardizing due diligence practices across the industry to prevent regulatory arbitrage and enhance investor protection. Future developments will likely include more stringent requirements for operational transparency and continuous risk assessment, driven by evolving regulatory expectations.
The UK's CARF adoption operationalizes a global tax transparency standard, requiring RCASPs to integrate new due diligence and transactional reporting modules by the start of 2026.
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