Effect of KYC and AML Regulations on Cryptocurrency Exchange Preference Among Nigerian Users

Abstract

This study investigates the effect of the regulatory framework in Nigeria, specifically Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, and their influence on users' preference between centralized exchanges (CEX) and decentralized exchanges (DEX) in Nigeria. Using a quantitative study design, a purposive sampling method was used to select 358 Nigerians with cryptocurrency trading experience. Using a structured, self-administered questionnaire. The data were analysed using binomial logistic regression in SPSS. Results revealed that AML sensitivity was positively correlated with the use of DEX such that sensitivity to AML policy is likely to significantly raise the odds of the user choosing a DEX over a CEX. Conversely, KYC conditions were negatively correlated with the choice of the CEX, where the stricter the KYC requirements, the lower the odds of the user choosing a centralized exchange. The model also estimated overall classification accuracy at 70.7%, indicating the predictive ability of these regulatory forces. The study concludes that AML and KYC frameworks are major impetuses of exchange choice and recommends a tiered KYC system, users' education, and the use of privacy-enhanced protocols. It also emphasized the importance of the bilateral process between regulators and industry players in the creation of evenly weighted mechanisms that maximize compliance as well as the participation and trust of the users.