Excerpted from a Market Watch blog by Aaron Hankin

Critics charge that cryptocurrency exchanges don’t gather enough background information on clients, leaving the trading venues vulnerable to illicit activity. And new research indicates they might have a point.

According to a report by P.A.ID Strategies, a payments and identity security consulting firm, more than two-thirds of 25 prominent crypto exchanges in Europe and North America come up short when scrutinizing new customers. The report found 68% of the exchanges allow its users to trade both crypto and fiat with no formal identification and no know-your-customer, or KYC, checks.

“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 cryptocurrency’s past and be seen as ‘model citizens’ of the economy,” said John Devlin, principal analyst at P.A.ID Strategies, in a news release.

Meeting regulatory demands ahead of a new European Union money-laundering prevention directive known as AMLD5 coming into force “could go a long way to changing this sector’s reputation as being something of a ‘Wild West’,” he said.

AMLD5 requires financial entities, including those selling virtual currencies, to provide more detailed information on their clients and ensure due diligence when signing them up. The directive was introduced last June, but member states have 18 months to comply.

Coinbase, Gemini and Poloniex ranked the highest in compliance among the 25 exchanges that were analyzed, with ID verification scores of 9/10, while SpectroCoin and Indacoin were at the bottom with a score of 2/10.

“A big part of its messaging is that you can use the exchange without registering and [that it] supports a high number of different coins,” the report said of U.K.-based exchange Indacoin, adding that users can buy cryptocurrencies with Mastercard or Visa credit and debit cards. Indacoin didn’t immediately respond to a request for comment.

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