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Trustlines vs Etherdelta

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If an exchange offers trustlines to it´s customers, would customers be able to transact with people who are not registered into that exchange and would that transaction between parties be considered a violation of KYC / AML regulation? Etherdelta is facing issues over securities trade, but on broader scale how can KYC be implemented to trustline transactions?

I understand that customers who want to withdraw fiat out from an exchange is KYC processed in that exchange, but how about transactions before that?

@JoelKatz @nikb @peebo38, could you help in this? Helps a lot if I know this by next monday, @miguel :)

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Yes, anyone can set a TrustLine with the issuing account, en thus make on-ledger trades and buy / sell the issued token. However, to deposit FIAT and convert to the IOU, or the other way around: withdraw the IOU and cash to FIAT, the user will have to go through your exchange. At this point you can perform KYC/AML checks.

Edited by xrptipbot

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https://developers.ripple.com/become-an-xrp-ledger-gateway.html hast most of the information you need, the part you seem concerned about needs to be checked in your local jurisdiction, there is no global standard for this. You can limit the set of people that are able to hold/trade your IOUs with https://developers.ripple.com/authorized-trust-lines.html. This is quite limiting though for all parties involved.

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Yeah, the local jurisdiction is the problem in this. And if we get ourselves in to trustlines, this guestion becomes globally local in an instant.

But after some reading and thinking, all this could suit into regulations and our license requirements nicely because transactions in trustlines are really not settled in any currency, but in IOU. Only point of KYC is when entering and exiting ledger, ie exchange´s KYC takes place just as mentioned.

"All assets in the XRP Ledger, except for the native cryptocurrency XRP, are represented as issuances, which are digital balances that represent currency or assets of value held by an issuer. Within the XRP Ledger, counterparties can send and trade issuances without requiring intervention from the issuer."

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For compliance sake Authorized Trustlines may be worth a look.

https://developers.ripple.com/authorized-trust-lines.html

"The XRP Ledger's Authorized Trust Lines feature enables a currency issuer to limit who can hold its issued (non-XRP) currencies, so that unknown XRP Ledger addresses cannot hold those currencies."

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