The cryptocurrency industry has attracted intense regulatory scrutiny following the implosion of several multi-billion dollar projects in 2022. Cryptocurrency exchanges, with their role as custodians and direct relations with retail investors, have become the primary target for regulators.
In the United States, the Securities and Exchange Commission (SEC) has issued a Wells Notice to Coinbase, fined Kraken $30 million for staking-related offerings, and charged Bittrex for allegedly operating an unregistered securities exchange. Additionally, developments across the EU, Dubai, Hong Kong, and other regions suggest that the days of lax crypto regulation are behind us.
Compliance for all cryptocurrency-related businesses will be crucial in this new era of lowered trust, especially for exchanges. In a recent interview, Priscilla Adams, Group Director of Compliance at Bullish, provided an overview of the current regulatory landscape and how leading exchange Bullish embraces compliance to drive mainstream adoption of digital assets.
As regulatory measures continue to roll out, it’s evident that enhancing the safety of digital asset investing is a top priority. Cryptocurrency exchanges have a significant role in implementing safeguards to protect their clients. With the industry and regulatory landscape rapidly evolving, exchanges bear the greatest responsibility in protecting users and maintaining strict compliance standards.
Top-tier crypto exchange Bullish is an industry leader in embracing the latest compliance standards and adopting cutting-edge blockchain analytics tools to ensure a safer environment for investors. Priscilla Adams believes that “if you as a digital service provider are serious about digital assets, you will be regulated, actively comply with regulations, and ensure you have technological solutions in place to protect the exchange from being exploited for financial crime.”
In this new age of increased regulatory scrutiny, cryptocurrency exchanges will become subject to compliance requirements previously applied only to the traditional financial industry. These include consumer protection and market integrity risk arising from issues such as conflicts of interest, segregation of duties, or segregation of client assets.
Crypto exchanges need to maintain their financial crime compliance programs while expanding coverage of these risk types. This trend is gradually becoming the new normal as regulations converge across different jurisdictions. According to Adams, compliance teams will need to retrain employees or hire additional staff to manage these new risks effectively.
Moreover, technology is not a “get out of jail free card” for crypto firms. While blockchain technology is ideal to support and enhance regulatory compliance, it doesn’t make firms immune to regulations. As regulation evolves globally, the need for a case-by-case evaluation of a firm’s activities and risk management procedures become crucial.
In conclusion, the rebuilding of trust in the industry requires cooperation between regulators, industry players, and crypto firms. Cryptocurrency exchanges need to play by the rules and convincingly demonstrate their compliance. As the industry matures, proactive measures from exchanges will immensely contribute to a safer, more transparent, and sustainable environment for investors.
Source: Blockworks
