Cryptocurrency Industry: The Expansion of Global Regulatory and Law Enforcement

The crypto industry faces growing regulatory and law enforcement attention, increasing compliance risk and the likelihood of litigation. That oversight swells in response to the explosive growth in Decentralized Finance, due to increasing instances of overleveraged and untested cryptocurrency trading products, heightened price volatility, flaws in smart contracts, and market manipulation.

Governments throughout the world are still determining how to better regulate cryptocurrencies and how to react to the potential impact to fiat currencies. In Europe, different countries have categorized Bitcoin as a currency, a financial instrument, or a security. In the U.S. as recently as July 9, 2020, Financial Industry Regulatory Authority (FINRA) published “Regulatory Notice 20-23,” which encourages broker-dealers to notify their assigned FINRA risk monitoring analyst as to whether they, their affiliates or their associated persons conduct, or intend to conduct, digital asset activity, including non-securities activity.

Globally, the entire crypto industry is racing to implement a set of standards to comply with June 2019 Financial Action Task Force (FAFT) Standards and Guidance which placed anti-money laundering and counter-terrorism financing (AML/CFT) requirements on virtual assets and virtual asset service providers (VASPs), including the so-called “travel rule” for digital currencies.

Furthermore, while other regulators around the world continue to include the crypto industry in their regulatory remit, the various U.S. Attorneys’ Offices continue to focus law enforcement investigative attention on Money Services Businesses (MSB). For example, in the European Union (EU) 5th Anti-money Laundering Directive (AMLD5) “virtual assets and virtual asset service providers are now recognized as “obliged entities” -- the same designation as banks, payment processors, gaming, and gambling businesses.