KYC and Privacy: AML, ZK Proofs and Crypto Supervision

KYC and privacy: balancing AML, ZK proofs and crypto supervision

Overview

Can you meet anti-money-laundering rules without sacrificing privacy? In this MERGE Madrid panel, Sumsub, TRM Labs, FINREG 360 and a blockchain intelligence consultancy debate how to balance KYC with privacy rights, the role of on-chain monitoring, and the latest supervision trends in Spain, Europe and Latin America.

What you'll learn

• KYC vs privacy: why the privacy dimension shouldn't disappear behind the fight-crime narrative
• Privacy-preserving tools: zero-knowledge proofs (ZKP) and selective disclosure
• GDPR and FATF: data minimization, proportionality and the risk-based approach
• Blockchain transparency: how on-chain intelligence detects financial crime almost in real time
• Monitoring or KYC?: the debate on when identifying the user is really necessary
• Regulatory trends: more supervision in Spain, progress in LatAm and Europe's new AML package (AMLA)

Session summary

KYC and privacy: Sumsub argues that compliance should work within the realm of privacy rather than against it, recalling that GDPR principles like data minimization and proportionality are legally binding and that the FATF itself acknowledges the risk-based approach must respect privacy.

Zero-knowledge proofs and selective disclosure: it explains how ZKPs let someone mathematically prove they meet a requirement (for example, being over 18 or not on a sanctions list) without handing over all their information, distinguishing their use in non-regulated settings and web3.

Blockchain transparency: TRM Labs stresses that, given the public nature of the blockchain, on-chain intelligence firms often detect risks and crimes in real time, unlike the more centralized, siloed model of traditional finance.

Monitoring or KYC?: the panel debates whether continuous monitoring can reduce reliance on KYC; the conclusion is that at some point KYC is still needed to identify those responsible, though it can be applied in a more nuanced, risk-based way.

Trends in Spain: FINREG 360 describes more supervision of the crypto sector (exhaustive questionnaires for registered providers), thematic reviews (for example, on digital onboarding), greater cooperation between authorities and a dedicated AML unit within the markets authority.

Latin America and cooperation: the blockchain intelligence consultancy explains that several LatAm countries are preparing crypto-AML regulation and strengthening their FIUs, and identifies international cooperation as the main bottleneck: without information-sharing structures, money changes jurisdiction before investigators can act.

The European horizon: it recalls Europe's new AML package, with the AMLA authority set to begin supervision in the coming years, and the need for interoperability and common standards so cryptographic identity proofs are recognized across jurisdictions.

Watch the full talk

Watch the full recording on MERGE's YouTube channel, with Sumsub, TRM Labs, FINREG 360 and a blockchain intelligence consultancy on KYC, privacy and supervision.

FAQs

How can you do KYC without giving up privacy?
According to the panel, with privacy-preserving tools such as zero-knowledge proofs (ZKP) and selective disclosure, which let you prove specific facts without revealing all your personal information.

Does on-chain monitoring replace KYC?
Not entirely. The panel concludes that at some point KYC is still needed to identify those responsible, but it can be applied more intelligently and proportionally to risk.

What supervision trends are there in Spain?
More supervision of the crypto sector, thematic reviews, greater cooperation between authorities and a dedicated AML unit within the markets authority, according to the talk.

Is this legal advice?
No. This content is informational and summarizes what was presented in the talk; it does not constitute legal or compliance advice. Consult a professional for your specific situation.