Peer-to-Peer (P2P)

Since there is no central body enforcing strict regulatory checks, such as monitoring transactions by default, P2P networks can be exploited for money laundering, terrorist financing, and fraud. However, more platforms are using standard measures, like Know Your Customer (KYC) verification, to prevent that. 

That’s why regulators are increasingly requiring P2P platforms to implement KYC/AML measures, especially in traditionally strict industries like banking and fintech (lower fees, faster transactions and greater financial inclusion should not compromise security). 

Regulators like the Financial Action Task Force (FATF) and national regulators have increasingly extended KYC/AML obligations to P2P service providers, particularly under the Virtual Asset Service Provider (VASP) framework.

In general, regulators have consistently flagged P2P platforms as higher-risk environments for:

• Money laundering. Criminals use P2P crypto exchanges to convert illicit cash into digital assets with minimal identity checks.
• Sanctions evasion. Sanctioned individuals and entities can exploit P2P channels to conduct transactions that would be blocked on regulated, centralized platforms.
• Fraud and scams. Without a central authority to mediate disputes or verify identities, P2P environments are attractive to fraudsters looking to commit investment fraud or synthetic identity fraud (using fake or stolen SSNs), among other scams, like e-commerce marketplace fraud. 

In financial and crypto contexts, P2P operates through a shared financial infrastructure (often, using blockchain technology) that records, verifies, and timestamps all transactions without requiring a bank or exchange to approve them.

Common P2P financial models include P2P payments (transfers between individuals using apps or crypto wallets), P2P crypto trading (trading directly on P2P exchanges, such as LocalBitcoins), P2P lending (borrowers and lenders are matched directly, cutting out traditional banks), and DeFi protocols (smart contract-powered platforms like Uniswap that automate P2P lending, borrowing, or trading). 

P2P payments are fast and easy to use for the general public due to various beneficial factors, such as:

• Instant transfers
• Simple mobile setup
• Easy bill splitting
• Clear transaction tracking
• Lower domestic fees

Most financial apps also use strong security protocols (encryption, identity verification), and send out real-time alerts to keep the users’ accounts safe.  Without a central approval layer, transactions can settle in seconds or minutes rather than days.

Often, yes. Know Your Customer, or KYC verification, requirements depend on location, service type, and transaction volume. For example, in the US, many P2P platforms qualify as regulated entities and must run AML programs, which include mandatory KYC checks. However, other service providers like the concept of decentralized platforms operate still in a grey area, but regulators claim to expect stricter requirements in the near future.