KYC/AML Compliance for a U.S. STO

Compliant STO’s Need to KYC/AML Investors

Thankfully the days of the non-compliant Initial Coin Offerings “ICO” are behind us. It’s clear that the SEC views the plethora of ICO’s since 2017 as unregistered securities issuances in violation of the 1933 Act.

U.S. companies continue to be interested in securitizing assets using the blockchain and, indeed, there seems to be significant capital available within the investment community to participate in such offerings.

So, to raise capital using an STO, issuers must do so in a regulatory compliant manner by either registering their securities offering or, more commonly, filing a registration exemption with the SEC pursuant to Regulation D Rule 506(c).

Issuers of such registered or exempt offerings are legally required to use a licensed broker-dealer “BD” to solicit and market their blockchain securities to investors throughout the U.S. BD’s have the capital markets know-how, investor reach and the requisite regulator licenses to raise capital in an STO.

BD’s must KYC each investor and run AML checks as part of the BD’s overall AML compliance program, as required under section 31 U.S.C. 5318(h) of the Patriot Act. Issuers buy-into KYC for sure, but they must also demand regulatory levels of AML for their STO from the BD.

Such KYC and AML requirements should not be outsourced to third-parties that run a $2 “check” on your investor. Investor data must be protected, by law, pursuant to SEC Regulation S-P and must be maintained and preserved by the BD pursuant to Rules 17a-4 under the Securities Exchange Act of 1934.

In summary, issuers want to issue compliant securities using the blockchain. To do so, they need a licensed BD. The BD must offer compliant KYC and AML services for investors. Issuers and BD’s should understand all the risks of outsourcing investor KYC and AML using “plug and play” API’s that pass private investor details to some far corner of the world for “verification”.

Check out for a high tech., high touch and BD-aligned KYC/AML compliance platform.

Horizon licenses and operates global securities exchanges.

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