Ever since KYC was extended to cover cryptocurrency exchanges, I have given up any faith in that this is solely about regulated currencies, or money laundering at all.

I don't understand this position. Cryptocurrency exchanges are the primary legal touch point (fiat offramp) for a lot of criminal activity. Of course they will get attention for AML.

I can understand the regulation of fiat/crypto exchanges, but the verification extends to centralized exchanges that merely facilitate exchanges one kind of purely virtual currency for another, neither of which have to be recognized as legal tender.

I didn't know those existed, and so I kind of see your point.

The counterpoint is that if your job was to prevent/punish financial crimes that affect consumers, would it make sense to ignore these exchanges?

Heck, if M:TG cards were the medium, and they could be moved across international borders with a few keystrokes, then surely those would be watched too.

I won't argue that it's not privacy-invading for legitimate customers, but if the legal structure allows it, regulators have an obligation to look where the problems are expected to be.

If my job was to promote open source software it would make sense to ban proprietary software. That doesn't mean I should actually be allowed to do that.

If you were the government, and the legal structure gave you an obligation to do X, you would do X.

Your implied comparison of "promotion" vs "monitoring" makes zero sense though.

... which is a step in the money laundering process, so of course it would.