Can NFT Marketplaces Be AML Compliant? – Finance Magnates
Despite the massive boom seen in the NFT industry, many still seem to be unconvinced about its future, which is why businesses who work towards AML compliance might have an edge later on.
As nascent as this technology seems, it shows incredible promise, fast growing adoption rates, and ease of use.
Accordingly, when those who are still caught up on conventional finance methods fully understand what NFTs can bring to the table, we might see widespread usage as integration into other industries will unfold.
As a way of working towards that goal, NFT businesses should consider a move towards being AML compliant, prepare themselves for future legislation, and solidify themselves as a reputable provider of NFT solutions and/or a NFT marketplace.
What are NFTs? A very quick brush up on non-fungible tokens
NFT is an acronym for Non-Fungible Token. The gist of it is that being non-fungible, in essence, means that the token (a unit of data) operates as a unique digital identifier which cannot be substituted, copied, or subdivided. The token is a unique and identifiable asset which recorded in a blockchain (digital ledger) which, in turn, certifies ownership and/or authenticity.
NFT ownership is transferable, which is why you can sell NFTs and trade NFTs on many online platforms.
NFTs can have an underlying asset such as licensing rights, but it can also be associated with different digital and physical assets.
However, that extralegal inherent nature of trading NFTs transfer of ownership is still lacking the proper regulatory framework, meaning it is still no clear what the legal basis for enforcement is.
Why should NFT marketplaces work towards compliance with AML requirements?
There are mainly 4 good reasons why NFT businesses should establish a course towards AML compliance.
1. Anticipating the inevitable regulatory framework
NFT marketplaces and other NFT related companies within the industry should fully expect to see regulation being drawn up and coming into effect.
In fact, it might happen sooner that everyone things as the European Union has already gathered legislators as it will attempt to analyze and regulate both crypto assets and any company which handle them.
By having AML infrastructure in place though an AML compliance program and reporting officers, companies can avoid potential penalties in the future.
Moreover, NFT businesses are in prime position to have a seat at the table with the legislators as a way of helping to set the agenda, instead having people who are less knowledgeable in the field to establish the framework.
2. Earning the trust of the general public, the investors, and the institutions
There is no getting around it. AML compliance is quintessential in establishing trust.
Whether it’s with their investors, the public, or institutions, businesses who strive to build lengthy, trustworthy relations should aim at transparency, safeguarding their stakeholders’ interests, and effectively taking measures to do so.
Verification procedures will help tackle fraudsters as NFT scams still seem to be rampant as in artists see their works illegally traded and lose potential profits from their sales and exhibitions.
By mitigating NFT fraud, businesses will build both trust with both investors and artists.
It comes as no surprise that some of the most prominent auction houses in the world were looking for AML compliant NFT businesses to establish partnerships.
3. Avoiding NFT money laundering
AML legislation is effectively trying to prevent the most known scam of allowing a money launderer to register two accounts and to buy NFTs from himself.
This vulnerability only happens when KYC measures aren’t in place as the buyer and seller identities are simply not checked.
4. Facing less attrition when converting crypto into fiat currency
Crypto earnings are likely to be converted into fiat at some point and an NFT marketplace might require a bank to do so.
Without having clear AML procedures, financial institutions cannot safely provide services to NFT companies as they might see themselves facing severe sanctions for doing so.
There are effective measures which can be taken which will surely help build NFT companies trust and overall industry legitimacy.
As time goes on, one thing is certain, legislation is coming.
Working towards achieving AML compliance should be a priority for NFT businesses because given how regulations seem to be tightening, they shouldn’t be caught with their guards down.