The best things happen when regulations and technological innovations go hand-in-hand. One of the biggest stories of tech-disruption in the past few years has been the rise of cryptocurrencies. The astonishing growth in trading volumes, the hoop-la around Bitcoin prices, the talks of blockchain being the answer to anything and everything[1]; there has been a lot of stuff going on.
However, the volatility of crypto trading markets, concerns of AML/CFT & price distortions, and the various theft-related incidents have kept regulators, governments, and financial institutions concerned. In the last few years, regulators, and governments have been keeping a tab on the risks associated with cryptocurrencies. The regulatory activity in this space has certainly increased with a bunch of several regulators working on devising clear regulations for cryptocurrencies.
Japan has been the front runner in this space with as many as 16 regulated crypto-exchanges. In the wake of the recent theft of $534 million worth of virtual currency from Coincheck, the Japanese regulator (FSA) has tightened the norms. A few days back, two crypto-exchanges in Japan were reportedly being shut down for non-compliance of regulations.
While Japan leads the race, other regions are following suit. The US and the EU are constantly working on refining their regulations around cryptocurrencies. In the US, the federal government has not restricted states from taking an independent stand on cryptocurrency. While some states have embraced crypto-trading, some haven’t. NY state department of FinServ has granted BitLicense to three entities (Circle, Ripple, and Coinbase).
In EU, Gibraltar has recently launched its duly regulated Gibraltar Blockchain Exchange[2] (GBX) which is a subsidiary of its stock exchange. Also, leading Japanese regulated exchange BitFlyer has begun its operations in both US and EU thus becoming a regulated entity in both these jurisdictions. Additionally, the recent acquisition of Poloneix by Circle also foreshadows the leading crypto-exchange coming under the regulatory purview.
Select major economies such as China have heavily clamped down on its crypto-exchanges. India, earlier seen as a burgeoning, friendly environment for cryptocurrencies, has been clamping down on cryptocurrencies in 2018. Some others such as Switzerland and Australia have issued clear guidelines regarding AML, data protection and securities of ICOs. South Korean regulators are also considering an approval system for crypto-exchanges, similar to BitLicense in the US. More than 20 South Korean crypto-exchanges have voluntarily agreed to undergo evaluation, focuses on self-regulation.
Major exchanges are now looking to adopt modern technologies in trade surveillance, monitoring, and other similar anti-fraud solutions to be able to stay aligned with the regulatory needs as well as stay ahead of the bad actors. With stringent regulations in place, there will be a greater onus on these exchanges to keep a tab on the risk associated with an enhanced technological governance and improved transparency in risk management.
With a growing gamut of regulations in crypto-exchanges, there
