Know Your Customer regulations were designed to prevent money laundering. The theory is straightforward: if financial institutions know who their customers are, they can identify and report suspicious activity. This is a reasonable theory. The practice is different.
In practice, KYC has become a compliance exercise in which financial institutions collect the minimum information necessary to demonstrate that they followed the procedure. The information is stored in databases. Those databases are breached. The breaches expose the identities of ordinary people who posed no financial risk but are now at elevated risk of identity fraud.
The liability transfer mechanism
The primary function of KYC, from the institution's perspective, is to establish a record that can be presented to a regulator in the event of a problem. The record says: we checked. We asked who this person was. They told us. Whatever happened next was not our fault.
The party protected by KYC is never the customer. It is always the institution.
Non-custodial exchange sidesteps this entirely. Without an account, there is nothing to know. Without a record of identity, there is nothing to breach. The architecture of the system produces privacy as a structural outcome, not a promise.
Terce requires no identity verification because there is no mechanism that would make it necessary. The exchange settles. The address is discarded. Nothing remains to be regulated.