So, PayPal have finally restricted my account to the point where I can receive money (funnily enough), but not transfer, spend or otherwise do anything with it, unless I send them copies of personal ID (which I refuse to do). They are not my bank and I don't trust them. The fact that I have verified my bank account and mobile number should be enough for them, but it seems this is not the case any longer. Thankfully I have a $0 balance so it's not really going to impact me too much.
So after 12+ years of using PayPal this way, I'm cutting my ties, along with anything that mandates PayPal. My bank account which was linked to my account will be closed (it was set up specifically for PayPal).
Now I can't blame them solely. I suspect some regulatory requirements have forced their hand a little bit, but their implementation just sucks. For example, Government services exist where stores/service providers can verify ID of their customers without requesting or storing copies of the personal documents. Those systems usually tie into the relevant road transport authority system which gives the third-party provider a pass/no pass result. The only people who get your personal information is the government, to check against their databases.
What sucks though, is PayPal won't let you properly close your account either, without verifying your ID. So if you have your current primary bank account linked, they still have on-going access to it.
This practice of holding people's money hostage, not allowing them to unlink accounts or close accounts is unconscionable conduct in my opinion.