The Crypto Industry’s Global Shift Towards Compliance

The regulatory and legal frameworks governing the crypto industry have transformed over the years, in line with the plans of many entrepreneurs to bring digital assets into the mainstream. Despite this, the crypto sphere still faces never-ending criticism over its lack of regulation, and it remains subject to laws created by individuals who were never even thinking about crypto when they first designed those rules. 

At the same time, regulatory bodies across the world have become increasingly vigilant when attempting to assess the potential risks of getting involved in crypto, resulting in a number of exchange platforms making moves towards becoming fully licensed and compliant. 

One of the most notable trends we've seen amid this increased focus on regulation is the imposition of fines on companies found to be non-compliant. This is especially prevalent in the U.S., where a number of agencies, including the Financial Crimes Enforcement Network (FinCEN), the U.S. Securities and Exchange Commission (SEC), and the Department of the Treasury (OFAC) have all handed out millions of dollars in fines to crypto companies.

Increased Scrutiny From Regulators

The rise in fines and regulatory actions imposed on crypto companies has increased steadily ever since 2018. Organizations including the SEC in the U.S. and the Financial Conduct Authority (FCA) in the U.K. have steadily strengthened their enforcement efforts, with the major aim being to protect investors and maintain integrity in the crypto market. 

A more recent development has been the expansion of regulatory frameworks taking aim at cryptocurrencies. Such initiatives often include provisions relating to Know Your Customer (KYC) and Anti-Money Laundering (AML) rules, disclosure obligations and investor protections. By implementing such regulations, authorities have been able to take a much stronger stance against companies that operate outside of compliance. 

With this shift, regulatory bodies have been able to step up their enforcement efforts on crypto companies that operate within legal grey areas. By levying fines on companies that engage in fraudulent activities, unlawful touting and scams, regulators are attempting to make the crypto industry a much safer place for investors, while deterring bad actors from getting involved in the space. 

High-Profile Fraudulent Activities 

While regulators have been stepping things up, the fraud in the crypto space continues unabated. What's more, a number of prominent cases involving shady companies, influencers and even celebrities have emerged, where they were involved in promoting cryptocurrencies without engaging in due diligence or making proper disclosures. Back in November 2018, the SEC filed charges against Floyd Mayweather Jr and DJ Khaled for unlawfully advertising an Initial Coin Offering (ICO), while both Kim Kardashian and the former NBA player Paul Pierce recently reached settlements with the SEC after promoting suspect crypto assets via social media. 

These high-profile cases have helped to highlight the serious consequences faced by any individual or entity that engages in activities that could be construed as misleading the general public. Crypto endorsements are a very risky business, and the SEC's actions have served as a wake-up call for both regulators and investors. At the same time, they also underscore the urgent need for greater transparency and due diligence in the crypto industry. 

These kinds of actions taken by regulators can have a significant impact. For instance, amid the ICO craze back in 2018, there was a surge in regulatory actions aimed at projects that were deemed to have failed to comply with securities laws. A number of ICOs were ruled to be unregistered securities, and slapped with heavy fines and penalties, with some even being forced to shut down altogether. 

Crypto Platforms Embrace Compliance

The ongoing push to ensure that everyone plays by established regulatory rules has pushed many companies within the crypto industry to focus their efforts on becoming fully compliant within the regulatory jurisdictions they operate in. It's likely that many companies believe they'll be forced to adhere to local compliance laws before too long anyway, and so it makes sense to start heading in that direction. 

As a result, there has been an increased trend among crypto exchanges and other digital asset firms to register their activities with the appropriate authorities, especially in countries perceived to be crypto-friendly. 

For instance, the popular crypto exchange Bitget last year voluntarily registered as a Virtual Asset Service Provider in Poland and Lithuania. The company explained at the time that doing so was a necessary step towards expanding its presence in the EU, while complying with applicable regulatory standards. As a registered VASP, Bitget now operates legally within those territories, and is committed to maintaining the highest standards of compliance and regulatory oversight. 

The move appears to have paid off, as the crypto analysis firm TradingView recently named Bitget as one of Europe's most trusted exchange platforms, saying it excelled in areas such as user expansion, trade volume and compliance.

Crypto firms are making similar moves in other parts of the world. Few countries are making such a concerted effort to regulate the crypto industry as the UAE and Dubai, which last year issued 19 regulated VASP licenses to companies and granted initial approval for a further 72, which are expected to be issued later this year. 

Another perceived crypto-friendly country is Singapore, which recently created a Payments Services Act that seeks to regulate the digital asset industry. Since creating that law, a number of crypto startups have made moves to become fully compliant with PSA rules, and one of the first to do so was the exchange platform Upbit, which was recently granted a license to operate and expand its business there. 

Some crypto platforms have gone even further, aiming for compliance in multiple international jurisdictions in order to build trust on a truly global scale. One of the most active exchanges in this regard is MultiBank, which began life as a financial derivatives trading platform before expanding into crypto in 2022. MultiBank claims to be one of the industry's most heavily regulated exchanges, as it holds 12 licenses issued by leading finance industry regulators in Europe, North America, Asia and the Middle East. 

Becoming regulatory compliant in the U.S., which is often perceived as being unfriendly to crypto, can be much more difficult but more than a few companies have managed to pull it off. For instance, the crypto on- and off-ramp service provider Ramp Network has managed to register its product with FinCEN, ensuring it can operate legally in multiple U.S. states. 

What Are The Implications?

Over the last few years, the crypto industry has changed significantly with the emergence of numerous new blockchains, cryptocurrency tokens and startups all vying for attention. Numerous scams persist to this day, but the industry has also shown signs of maturity by voluntarily moving towards compliance. 

Thanks to the heightened enforcement actions by authorities like the SEC, the expansion and evolution of existing regulatory frameworks and the emergence of crypto-native regulations in forward-thinking nations, the industry is slowly but surely becoming more responsible. 

No doubt, crypto's regulatory landscape will continue to evolve, with more platforms putting an emphasis on compliance and more countries looking to establish proper rules regarding their activities. It's a positive trend that bodes well for crypto, as tighter regulation will not only mean more user protections, but hopefully, more widespread adoption and growth for the industry as well.