The rapidly evolving nature of cryptocurrency regulations, region-specific legal frameworks and varying levels of regulatory clarity, pose a series of challenges for crypto firms aiming to maintain compliance across multiple jurisdictions.
KYC-Chain provides a range of innovative digital solutions that help global businesses to minimize operational risks and guarantee full regulatory compliance.
In this article, we provide a structured approach to addressing common multi-regional compliance challenges.
The very first task of compliance for crypto firms is gaining a deep understanding of how and why each jurisdiction has its own set of rules and regulations concerning cryptocurrencies.
Aiming for full compliance, companies have to research the specific regulatory requirements of each jurisdiction. In practice, this usually means determining if a country requires special licenses for crypto exchanges, wallets, or ICOs.
Meticulous monitoring of regulatory updates is an absolute necessity. Regulations change frequently, especially in areas like anti-money laundering (AML) and counter-terrorism financing (CTF).
It is not uncommon for businesses to partner with local legal advisors in order to understand specific compliance nuances.
Cryptocurrency firms are expected to follow a range of AML and CTF laws, which may differ according to jurisdiction.
A key cornerstone of regulatory compliance for crypto firms — like many other regulated financial businesses — is KYC.
Firms are legally obligated to implement robust KYC processes in order to avoid penalties and ensure compliance. In practice, this involves the following key tasks:
With varying tax regulations, crypto firms ultimately need to efficiently manage their tax obligations in each jurisdiction.
In some countries (such as in the US), cryptocurrencies are treated as property or securities, while others treat them as currency or commodities. Others — such as Bangladesh, Nepal and Afghanistan — have also attempted to ban them altogether.
The diversity of the global compliance landscape translates into a wide, constantly-shifting set of reporting obligations for crypto companies across jurisdictions.
And compliance is not only limited to KYC and AML — while ensuring compliance with tax filing in multiple jurisdictions, crypto firms adhere to tax structures that may differ in how gains, losses, or crypto holdings are treated.
Let’s take a look at the various dimensions and aspects of compliance that crypto firms need to consider.
Different jurisdictions have specific requirements regarding the collection, storage and sharing of data, especially personal information obtained via KYC processes. Some dominant data protection and privacy policies include the following:
General Data Protection Regulation (GDPR) in the EU: Firms operating in, or serving customers in the EU must comply with strict data privacy and protection rules.
California Consumer Privacy Act (CCPA): In the U.S., the state of California imposes stringent consumer privacy laws.
Data localization: Some countries (India) have data localisation laws, requiring firms to store data locally.
Conducting regular internal audits to assess and ensure compliance with regional and global regulatory requirements is a common necessity for crypto firms around the world.Firms dealing with cryptocurrencies will often need to establish specialized teams to manage compliance across jurisdictions, with region-specific experts.
A key strategy involves employing blockchain analytics tools and regulatory technology (RegTech) solutions to help automate compliance, track regulatory updates and audit procedures.
Staying engaged with regulators and compliance bodies across jurisdictions has become essential for long-term success, efficiency, and ultimately, customer trust.
Crypto firms are well advised to establish open communication channels and be proactive in discussions with regulatory authorities in order to understand emerging policies.
Crypto businesses will also be better served in the long-term if they contribute to the compliance conversation by engaging in regulatory sandbox initiatives or public consultations.
If dealing with cross-border payments or crypto-based securities, firms must also consider the following types of regulations:
Adherence to securities laws (e.g., SEC regulations in the U.S.). These can determine if the tokens or assets being offered classify as securities.
Foreign Exchange Management Act (FEMA): For countries like India, crypto firms may be subject to foreign exchange laws when dealing with cross-border transactions.
Crypto regulations around the world are in a constant state of flux, though there is now a growing and relatively stable body of regulations set by global regulatory bodies that have been specifically designed for national regulators to adopt in their crypto companies and crypto currencies. Below is an overview of the most important international and transnational initiatives aiming to bring uniformity to crypto regulations:
Financial Action Task Force (FATF)
The FATF is an intergovernmental body established in 1989 with the primary goal of combating money laundering (AML) and terrorism financing (CTF) on a global scale.
FATF's members include 39 jurisdictions and two regional organizations (the European Commission and the Gulf Cooperation Council), with member countries spanning Europe, the Americas, Asia, and Africa.While the FATF lacks direct legal enforcement power, its influence stems from the ability to apply reputational pressure and create financial and economic incentives for compliance. This influence does not just extend to its members — non-members are pressured to adhere to the FATF’s recommendations through the threat of sanctions being imposed by its signatories.
The FATF: How does it work?
Technical Assistance: FATF also provides technical support to help countries develop systems for regulatory oversight and law enforcement collaboration.
In response to the growing use of cryptocurrencies for illicit activities, FATF has developed specific recommendations to ensure that the crypto sector is properly regulated for AML/CTF compliance.
These guidelines are primarily outlined in Recommendation 15, which was updated in 2019 to address the risks posed by virtual assets (VAs) and virtual asset service providers (VASPs).
FATF’s guidelines have been crucial in formalizing the regulatory framework for virtual assets, making the crypto sector more transparent and accountable.
However, complying with FATF standards, particularly the Travel Rule, presents significant challenges for the decentralized and often anonymous nature of many crypto transactions.
Many crypto firms are investing in compliance technologies (e.g., RegTech solutions and blockchain analytics) to meet these obligations.
International Organization of Securities Commissions (IOSCO)
Established in 1983, IOSCO is a global body composed of securities regulators from over 130 jurisdictions, including the U.S. Securities and Exchange Commission (SEC), the UK Financial Conduct Authority (FCA) and other national regulatory agencies.
IOSCO aims to promote strong and consistent standards for securities markets to protect investors, ensure market integrity and foster efficient, transparent and stable financial markets.
Given its role in regulating securities markets, IOSCO is particularly concerned with crypto assets that are or may be classified as securities or involve investment products — that is, crypto assets that cannot demonstrate that they constitute some form of utility.
The IOSCO is also proactive in developing new suggested policy frameworks and educational information for the crypto space — the organization’s latest report, published in October of 2024, is dedicated to investor education on crypto assets.
Playing a pivotal role in shaping global securities regulation, IOSCO’s focus on crypto assets aims to ensure that digital markets operate with transparency, integrity and investor protection.
With IOSCO's guidelines being adopted by national regulators, crypto firms must be prepared to navigate increasingly more formalized and consistent securities regulations across jurisdictions.
IOSCO Guidelines: Who follows them?
Many national regulatory bodies worldwide adopt International Organization of Securities Commissions (IOSCO) guidelines to enhance financial market integrity, transparency and investor protection. Here are some notable examples:
- United States - Securities and Exchange Commission (SEC): The SEC aligns its regulatory framework with IOSCO’s principles on market transparency, systemic risk reduction and investor protection.
- European Union - European Securities and Markets Authority (ESMA): ESMA, the EU’s financial markets regulator, has integrated IOSCO principles into its Markets in Financial Instruments Directive (MiFID II) and other regulatory frameworks.
- Japan - Financial Services Agency (FSA): In order to safeguard its markets, Japan’s FSA incorporates IOSCO standards in areas like market surveillance, risk assessment and corporate governance.
- Australia - Australian Securities and Investments Commission (ASIC): ASIC uses IOSCO’s recommendations to frame its regulations on disclosure, financial reporting and market conduct, fostering a fair and transparent market environment in Australia.
- Brazil - Comissão de Valores Mobiliários (CVM): Brazil’s CVM applies IOSCO’s standards to ensure robust market operations and protect investors. The CVM follows IOSCO guidelines for audit regulation, disclosure and market conduct in an effort to make Brazil’s capital markets more transparent and accountable.
- Hong Kong - Securities and Futures Commission (SFC): Hong Kong’s SFC follows IOSCO principles on issues such as cross-border regulatory cooperation, transparency and investor protection.
India - Securities and Exchange Board of India (SEBI): SEBI has adopted IOSCO’s guidelines on disclosure, investor protection and market transparency.
While international bodies and organizations such as the FATF play a central and guiding role in developing policy and regulatory recommendations for the crypto space, enforcement of these rules is reliant on the national authorities and regulators that adopt them.
For compliance firms managing the regulatory responsibilities of crypto firms operating across multiple jurisdictions, a detailed grasp of the regulations in the jurisdictions of your clients and their customers is critical. Below, we cover the key regulations in some of the largest and most influential crypto markets.
The U.S. has a fragmented regulatory environment for crypto, with multiple regulatory bodies overseeing different aspects.
Challenges:
◉ Navigating state and federal regulatory requirements simultaneously.
◉ Classification ambiguities between the SEC and CFTC for tokens.
The EU is moving towards a more unified regulatory framework with the Markets in Crypto-Assets (MiCA) regulation, expected to be fully enforced by the end of 2024. Until then, regulations vary by country.
Challenges:
◉ GDPR compliance makes data management complex, especially when personal information is processed across borders.
◉ National laws still apply until MiCA is fully adopted, requiring firms to meet the individual requirements of EU member states.
MiCA: When will it be enforced?
The EU’s Markets in Crypto-Assets (MiCA) regulation is currently being rolled out in phases. Officially coming into force in June 2023, it is meant to be fully implemented by December 2024. The regulation is designed to be applied uniformly across all EU member states, ensuring that crypto-asset service providers (CASPs) and token issuers comply with common standards. By June 2024, the sections covering asset-referenced and e-money tokens (such as stablecoins) were in effect, and the remaining rules, which include consumer protection, transparency and operational standards, will be fully enforced by December 2024. While some countries may already be preparing for — or have already started aligning with — MiCA, full compliance will only be expected by the end of 2024. As of October 2024, not all EU countries have fully adhered to the new regulations, but they are working towards it.
Post-Brexit, the UK has developed its own crypto regulations, though it closely mirrors the EU in many aspects.
Japan has a very clear regulatory framework for cryptocurrencies.
Singapore offers a favorable regulatory environment for crypto firms, with clear guidelines — an approach which has unsurprisingly led it becoming a global hub for crypto companies.
The United Arab Emirates (UAE) has emerged as a major global crypto and Web3 hub, driven in no small part by its progressive and increasingly regulated environment for cryptocurrencies and virtual assets. The UAE’s approach to crypto regulation is structured around specific compliance and regulatory frameworks tailored to its various free zones and mainland jurisdictions, each aiming to attract Web3 innovators while protecting investors and preventing financial crimes. Here’s a breakdown of jurisdiction-specific compliance insights in the UAE:
The ADGM, Abu Dhabi’s international financial center, was an early adopter of virtual asset regulations and set up the Financial Services Regulatory Authority (FSRA), which oversees digital assets in the region.
The DIFC, another prominent UAE free zone, has taken a measured approach to cryptocurrency regulation. The Dubai Financial Services Authority (DFSA), DIFC's regulatory arm, has recently set out more structured guidelines for virtual asset service providers.
The Virtual Assets Regulatory Authority (VARA) was established in 2022 as the exclusive entity overseeing digital assets within Dubai’s mainland jurisdiction, including areas outside DIFC.
The Central Bank of the UAE (CBUAE) is also involved in the oversight of virtual assets, particularly concerning AML/CFT compliance. In 2021, CBUAE issued new AML regulations for digital asset providers in collaboration with the Ministry of Economy, which apply across both free zones and mainland jurisdictions.
The Dubai Multi Commodities Centre (DMCC) and Dubai World Trade Centre (DWTC) free zones have also started attracting crypto businesses with dedicated regulatory support.
Licensing and Compliance: DMCC and DWTC require crypto businesses to obtain licenses specific to digital asset activities, incorporating necessary compliance procedures for AML/CFT.
Key Compliance Takeaways for Cryptocurrency Firms in the UAE
The UAE’s structured, multi-jurisdictional approach provides clear guidelines for crypto firms while allowing flexibility for innovation, attracting both local and international blockchain businesses.
In order to manage compliance efficiently across multiple jurisdictions, many crypto firms rely on RegTech solutions that offer automation and compliance tools designed to help companies manage regulatory requirements efficiently.
At KYC-Chain, we offer a compliance dashboard and whitelabel customer on-boarding portal, enabling companies to perform due diligence on their customers in accordance with CDD, AML and KYC requirements. We provide automated on-boarding of people and legal entities by leveraging technology such as artificial intelligence-powered ID document verification, biometric and liveness checks, and blockchain-based identity credentials.
Crypto compliance firms need to use RegTech solutions to properly serve their crypto clients, especially given the evolving and complex regulatory landscape surrounding cryptocurrencies.
Here’s a breakdown of the types of crypto companies that can be served using RegTech — and how these solutions can help them:
Cryptocurrency Exchanges
Crypto exchanges, whether centralized (CEX) or decentralized (DEX), must comply with strict AML and KYC regulations. RegTech solutions help with the following:
▪︎ KYC/AML Compliance: Automated KYC processes for onboarding customers, ensuring that personal information is verified and compliant with local regulations.
▪︎ Transaction Monitoring: Real-time transaction monitoring for suspicious activities or large transfers that could indicate money laundering or fraud.
▪︎ Reporting Requirements: Automated generation of compliance reports for regulators, including suspicious activity reports (SARs) and reports required by tax authorities.
Crypto Wallet Providers
Crypto wallet providers, particularly those offering custodial services, must ensure they adhere to AML regulations and protect customer funds. RegTech tools can help with the following:
▪︎ Customer Due Diligence (CDD): Verifying customer identities and monitoring wallet activities to prevent money laundering and fraud.
▪︎ Compliance with FATF’s Travel Rule: Ensuring that information about the originator and beneficiary of crypto transactions is shared between VASPs (Virtual Asset Service Providers).
Initial Coin Offering (ICO) / Token Issuers
Companies issuing tokens through ICOs, STOs (Security Token Offerings), or other fundraising mechanisms are subject to securities regulations in many jurisdictions. RegTech solutions can assist with the following:
▪︎ Securities Law Compliance: Ensuring that token sales comply with securities regulations in different countries (e.g., SEC regulations in the U.S.).
▪︎ KYC/AML: Automating KYC for investors participating in token sales to comply with regulatory requirements.
▪︎ Cross-Border Compliance: Managing varying regulatory requirements across multiple jurisdictions where the tokens are being sold.
DeFi (Decentralized Finance) Platforms
DeFi platforms operate decentralized services, but they are increasingly under scrutiny from regulators who are concerned about anonymous users and illicit activities. RegTech can provide the following benefits:
▪︎ KYC Integration: Enabling optional or mandatory KYC verification for DeFi users while balancing decentralization principles.
▪︎ Risk Management: Monitoring for high-risk or suspicious addresses participating in decentralized lending, borrowing, or trading.
▪︎ Regulatory Reporting: Ensuring that DeFi platforms can provide regulators with necessary reports, such as transaction histories or customer data (in case of audits).
Stablecoin Issuers
Stablecoin issuers, especially those pegged to fiat currencies, must ensure compliance with financial regulations regarding money laundering, fraud, and reserve auditing. RegTech solutions provide the following advantages:
▪︎ Reserve Auditing and Transparency: Providing transparent reporting on reserves backing the stablecoin, ensuring that they meet regulatory requirements for transparency and auditing.
▪︎ KYC for Users: Ensuring that the users buying or redeeming stablecoins are verified and that the transactions are compliant with AML laws.
▪︎ Regulatory Monitoring: Keeping track of the evolving regulatory landscape for stablecoins, especially with new guidelines from organizations like the Financial Stability Board (FSB) and FATF.
Crypto Custodians
Crypto custodians hold and manage digital assets on behalf of institutions or individual clients. They are subject to stringent regulatory requirements to safeguard customer assets. RegTech solutions support them with:
▪︎ Safekeeping and Security Requirements: Ensuring that assets are securely stored and segregated according to regulatory standards.
▪︎ AML/KYC for Institutional Clients: Verifying the identity of institutional clients and performing enhanced due diligence on high-risk clients.
▪︎ Transaction Monitoring: Tracking large withdrawals, deposits, or transfers to detect any suspicious activity.
Crypto Lending and Borrowing Platforms
Crypto lending and borrowing platforms often face scrutiny due to the high value of transactions and the potential for money laundering. RegTech can assist with:
▪︎ Risk Profiling: Evaluating the creditworthiness of borrowers using non-traditional data (such as on-chain transaction history) while complying with KYC/AML standards.
▪︎ KYC Compliance: Verifying the identities of lenders and borrowers, ensuring compliance with regulations on loan issuance and money transfers.
▪︎ Regulatory Reporting: Providing automated reports to regulatory authorities regarding lending activity and compliance with applicable laws.
Crypto Payment ProcessorsCrypto payment processors that enable businesses to accept crypto payments face a unique set of compliance challenges related to AML and fraud prevention. RegTech can help by:
▪︎ AML Transaction Monitoring: Ensuring that payments processed through the platform are compliant with AML regulations by detecting suspicious payments and preventing fraud.
▪︎ KYC for Merchants and Users: Verifying both the merchants who use the platform and the customers making crypto payments to prevent money laundering.
▪︎ Cross-Border Payments Compliance: Helping ensure compliance with local regulations when processing international payments.
Offering a multi-scope workflow, KYC-Chain’s Multi-Scope feature has been a compliance game changer for compliance firms managing multiple crypto clients across regions.
Taking a siloed approach, legacy KYC for compliance firms would conventionally involve managing each client’s compliance processes and and KYC procedures separately
Even if each client followed KYC processes specifically tailored to them by the compliance firm, a siloed approach often resulted in non-standardized checks that varied significantly across the group’s affiliate businesses.
Facing an exponential challenge, compliance firms managing multiple clients operating in diverse sectors and regions can find it very difficult to ensure consistent and effective KYC/AML implementation across their client portfolio.
Ensuring AML and regulatory compliance across jurisdictions is challenging enough for a single company — for compliance firms whose bread and butter is serving multiple clients in a high-risk space such as crypto, efficiently meeting the challenge means carefully choosing and adopting the right RegTech solution.
KYC-Chain’s Multi-Scope feature offers crypto compliance firms a diverse range of key benefits:
For compliance firms managing multiple clients, the ultimate goal is consistency and cost-effective compliance across the client network.
With KYC-Chain’s multi-scope workflow, KYC processes carried out by each client can be monitored and controlled from the head office, with each process integrated into a single platform - or “instance” - managed and viewable by the compliance firm.
Ensuring compliance with local KYC/AML regulations, each client’s KYC processes — termed a ‘scope’ — can be configured individually with high customization, both in front and back end environments.
Essentially, this allows for white label branding and design, as well as the implementation of KYC checks that are specific and unique to each business’ particular areas of operation and activities.
As permissions are also highly customizable, the compliance firm manager’s permission to control the functions of each scope can be pre configured. In parallel, each scope can only view and process the end users of their own scope, maintaining end user and client data privacy for each scope.
Maintaining compliance across multiple jurisdictions requires a multi-faceted approach, including region-specific legal guidance, robust AML/KYC protocols, understanding tax obligations, and leveraging technology for compliance. Ultimately, continuous monitoring and adapting to regulatory changes are essential for staying compliant and mitigating risk.
Virtually all types of crypto companies—from exchanges and DeFi platforms to wallet providers and token issuers—can meet their compliance challenges more efficiently through RegTech solutions. For compliance firms that are specialized in serving customers in the crypto world, these tools allow them to automate complex compliance processes for multiple clients simultaneously, and with far fewer resources than traditional processes.By adopting the right RegTech solution, crypto compliance firms can continue to scale while maintaining a strict and consistent quality compliance service for their crypto clients.
Looking for a market leading KYC solution to manage all of your crypto compliance needs in one place? Get in touch and we’ll be happy to discuss how KYC-Chain can work for you.
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