Major Regulatory Concerns in Crypto

Recent events on the crypto market revealed that even the largest cryptocurrency exchange platforms can be caught red-handed in activities that are in stark contrast with regulations. In the past few years, regulatory bodies across the globe have been taking decisive steps to regulate the crypto market and put a stop to illegal activities. 

The US regulators are especially proactive when it comes to crypto regulations. During the past year, the U.S. Securities and Exchange Commission (SEC) has filed multiple charges against major exchanges operating in the US, with the last one resulting in a 4+ billion USD fine, which is the largest ever fine paid by an exchange. 

In this blog post, we’ll have a look at the four major concerns expressed by US regulators in the latest court case. We’ll also see why is it important for crypto exchanges to address these concerns and prevent such practices. 

Non-Regulated Services

Up until a few years ago, a huge portion of global cryptocurrency exchanges were operating in a totally unregulated manner, with no operating licences whatsoever. There are still various popular international exchanges registered in offshore locations, providing non-regulated services to millions of users across the globe. The lack of operating licences means that these non-regulated platforms don’t answer to any institution and basically make the rules themselves, contributing to a highly unpredictable and risky investment environment.

An essential step towards the creation of a safer crypto market is by regulating crypto trading platforms, and making sure that only regulated exchanges are providing services to users. Without regulations, the market is chaotic and poses numerous risks to everyday investors because the services and operating mechanisms of exchanges can dramatically differ. Moreover, users don’t have any legal protection in case an exchange gets hacked or goes bankrupt, when they use a non-regulated platform.

With zondacrypto, traders can rest assured they are using a legitimate, regulated service because we have operating licences in all the jurisdictions where we operate. For example, our Estonian licence grants us the possibility to provide regulated services in all EU states and makes us compliant with the EU MiCA regulation.

Money Laundering

Unfortunately, crypto is highly susceptible to money laundering because of the high degree of anonymity offered by blockchain technology. You don’t need to tie personal details to a crypto wallet address, and it can be quite easy to obscure the source of crypto funds with a couple of blockchain transactions. However, this is only true for non-regulated trading platforms.

That’s because regulators around the world are introducing mandatory anti-money laundering (AML) measures to prevent the use of crypto exchanges for laundering illegal funds from criminal activities. The platforms that don’t have strict and efficient AML measures can become money laundering hubs. Recently, it turned out that one of the largest crypto exchanges was possibly involved in laundering over 100 million USD worth of crypto tied to crypto wallets connected with a darknet marketplace called Hydra, over a period of several years. This was possible because of the lack of AML features such as Know Your Customer (KYC) protocols that require exchanges to verify the identity of their customers.

zondacrypto’s regulatory compliance includes strict AML procedures in line with the highest EU standards. In fact, the AML team is the largest sector in zondacrypto.

International Sanction Violations

The cryptocurrency market should be in line with international law, but it seems that non-regulatory-compliant platforms often disregard this fact. A recent court case revealed that a top global cryptocurrency exchange operating in the US was providing services to a huge number of accounts registered in US-sanctioned countries such as Iran. US regulators have found that between 2018 and 2022, the platform processed nearly 900 million USD worth of crypto transactions between users in the US and Iran. 

Crypto trading platforms need to take responsibility for their actions and contribute to overall global financial stability by adhering to international law and respecting economic sanctions. Potential users from sanctioned countries can’t pass the KYC process on zondacrypto, and without doing so, they can’t use our platform. 

Financing of Illegal Activities

The financing of illegal activities by non-regulated crypto exchanges isn’t something these platforms do on purpose. However, it’s an exceptionally harmful by-product of a lack of AML measures and regulatory compliance. This loophole is sometimes exploited by international terrorist groups, drug cartels, and organized crime groups. The latest SEC case against a crypto exchange revealed that crypto wallets associated with known terrorist groups like Al-Qaeda and Islamic State were interacting with the platform for a prolonged period.

Without mandatory AML measures, crypto exchanges can have a hard time preventing such cases. On the other hand, with the adoption of a thorough regulatory framework that includes efficient AML procedures, platforms can decisively prevent criminal groups from abusing blockchain technology.