The Rise of Crypto Regulations

How to Comply Now, and for the Future

By Ben Richmond, CEO and Founder of CUBE Global

As cryptocurrency is gradually explored as a mainstream option for payments – with Tesla, Starbucks and even Gucci offering customers payment options – it becomes increasingly striking that much of cryptocurrency continues to fall outside of the regulatory arena. Technology and innovation are moving at an incredible pace, unlike anything we’ve seen before, but financial regulation has struggled to keep up. As a result, as crypto providers, fintechs, and legacy financial institutions try to grapple with the patchy regulatory landscape, compliance remains complex and unclear.

This lack of regulation isn’t for want of trying, however. In the last few months alone we’ve seen exciting developments from regulators across the globe. In particular, the Securities and Exchange Commission has made great strides in its journey to regulate crypto – doubling the size of its cyber unit in order to “be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.”

We’ve also seen President Biden take the bold step of signing an Executive Order to ensure the responsible developments of digital assets – a move which was widely seen as bringing such assets into the mainstream of financial services. Or at least a step in that direction.

These are welcome steps toward creating a regulatory framework. But, given the news that the SEC has brought more than 80 enforcement actions related to “fraudulent and unregistered crypto asset offerings and platforms,” some might say current regulatory activity is too slow.

This is especially true when you consider crypto for what it is – a borderless, global digital currency. Despite this, regulators the world over are operating in silos in their creation of cyber rules and regulations. This lack of cohesion makes current and future compliance even more complicated.

What’s the current state of play?

While a watertight framework for crypto does not yet exist, we do see some regulators taking enforcement action under existing Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT) rules – as well as fraud. According to a report from Chainalysis, crypto crime hit a high of $14 billion in 2021, although this only represents a 0.15% share of the overall $15.8 trillion crypto transaction volume.

So crypto crime is on the rise, though remains comparatively low considered against legacy finance. This will be of little comfort to those who find themselves victim to such malpractices with little avenue for recourse or protection. The sheer volume of capital at play within the crypto market is often seen as reason enough for regulation.

The key to future regulation

Over the next few years, we will need to see regulations emerge. There are several factors for regulators to consider when forming new regulations:

  1. They must protect consumers and financial stability
  2. They should work cohesively across borders in order to be easily interpreted and actioned by compliance teams
  3. They should be strict enough to ensure step 1, but not so strict as to prevent innovation, creativity or to push people to operate in secret.

This is no easy task for the regulators, and they will need to act swiftly, as innovation will not wait for them to catch up.

Managing future regulations for crypto

For many firms, the main challenge at present is anticipating regulatory change to come. Global regulators are issuing large volumes of speeches, consultations, press releases surrounding cryptocurrencies, but for many, it’s difficult to keep up, and even harder to know what is important. Manual and legacy processes often lead to knowledge gaps – there’s only so much a compliance team can manage, after all. As we begin to see real, hard-letter law and regulation for crypto, these outdated compliance processes will likely become more convoluted – and more prone to error.

Instead, fintechs, crypto providers and larger financial institutions should be fighting technology with technology and investing in compliance innovation that can keep up with regulatory change. RegTech is able to automate the end-end regulatory change journey. Using advanced technology and AI, RegTech is able to track regulatory change from inception, classify it, translate it, and consolidate all emerging regulation into a single regulatory inventory. Advanced RegTech – those that provide Automated Regulatory Intelligence – are not only able to automate the process but to essentially make sense of emerging regulation to suit your specific business profile.

This technology ensures that you’re compliant, that you know what’s coming around the corner, and that you can understand the context of regulatory change against your business operations.

Firms should not wait to implement new technology

One of the reasons we are where we are with crypto is that the regulators waited to act. It isn’t clear why regulators are on the back foot – perhaps a lack of resources, uncertainty about the direction of travel, or wishful thinking that it would blow over. As we begin to see regulators starting to take action, firms may think that it’s too soon to invest in compliance technology. This would be a mistake.

As we’ve seen with ESG, regulators are starting to pump investment and resource into emerging areas of regulation. Topics that were almost unheard of a few years ago are now seeing new regulatory expectation, and fast.

It is likely – as with ESG – that we will see crypto regulation published imminently from regulators. As global brands and businesses bring crypto into their everyday, regulators will be forced to act quickly. If firms are on the back foot with their compliance technology, they will only have further to travel when D-Day comes. Instead, they should be proactive in exploring compliance solutions that will intelligently automate their regulatory change management process. The time to act is now.


About the Author

The Rise of Crypto RegulationsDriven by a vision of the future of regulatory compliance, Ben founded CUBE in 2011. Once described as the ‘world-beating Rockstar of RegTech’, Ben is our results-driven CEO with a focus on progression and growth.

Ben started his career in technology at MISys and soon came to realize the untapped potential hidden within unstructured data. With this potential in mind, Ben set out to build business centered around harnessing unstructured data for the greater good within financial services. In 1998, he founded The Content Group, with a view to set global standards for content-related initiatives.

In 2008, in the midst of the global financial crisis, Ben was quick to see that the future of financial services was going to change. The industry had been brought to its knees due to lack of efficient controls. Ben saw that the future of finance was rooted in more rules, regulations and policies – unstructured data that would need to be harnessed and managed by financial institutions. With this vision in mind, Ben founded CUBE.

Ben can be reached online at Twitter, LinkedIn and at our company website

November 19, 2022

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