The sun begins to go under the wild-west days of cryptography

Even if cryptocurrencies are increasingly accepted as asset classes, they have trouble lifting their reputation, a Digital "wild West" - a place in which laws and regulations rarely apply.

However,

there are signs that the lawless days of cryptocurrencies come to an end. As a result, companies that market crypto-assets-as well as providers of digital services-are not trying to be held accountable by new regulatory requirements.

The markets for cryptocurrencies have grown quickly since the beginning of Coronavirus pandemic, and according to the tax authorities, the value of the industry has regularly exceeded $ 2 trillion.

Last month, Fabio Panetta, board member of the European Central Bank, a US audience that the crypto market is now greater than that for subprime mortgages-$ 1.3 trillion-when he triggered the global financial crisis in 2008.

He said that an estimated 16 percent of Americans and 10 percent of Europeans were exposed to cryptocurrencies or related assets in any way - and warned of the potential dangers of a market crash.

Today, the ECB is one of many regulatory authorities worldwide that are looking for ways to curb this previously unattended area, in which a lack of rules were also a main attraction and a reason to worry.

This has led to more and more crypto companies ask for help to comply with the growing regulatory requirements, says Rachel Woolley von Fenergo, a Dublin-based company for compliance software.

"Many virtual asset service companies have complied with their compliance obligations because they have not fulfilled them as effectively as they could have done," says Woolley, Global Director of Financial Crime at Fenergo.

"This idea that one can intentionally violate duties has to be gone. The reality is this regulation [in Crypto] becomes narrower and there will be fines," she adds.

fines and prohibitions are already being imposed.

As a basic requirement, the supervisory authorities require that trading platforms and service providers carry out money laundering tests - a rule that many keep stumbling.

In April, the US Office for the Currency of the Currency issued an injunction against the Anchorage Digital Bank, which claimed to be the first state -licensed bank for digital assets that were able to act as a custody and offer its customers crypto. But last month, the licensed subject deprived the approval and referred to the lack of controls in the monitoring of suspicious activities - including controls to combat money laundering.

The ban is in accordance with Fenergo research results, which show an increase in the orientation of regulatory authorities on companies in connection with cryptocurrencies.

In August last year, the Bitmex trading center had to pay $ 100 million in fines to the US Commodity and Futures Trading Association because it had not passed the money laundering rollers.

Many crypto companies argue that most actors in the industry are very interested in following rules, but that a lack of clarity about what is necessary is hindered these efforts.

The British regulatory authorities were criticized for slow progress both in the registration of companies that want to offer digital asset services, as well as when setting up a framework for cryptography.

nikhil Rathi, Chief Executive of the British Financial Conduct Authority, said last month that the regulatory authority is waiting for more powers to monitor crypto companies that go beyond the basic requirements for combating money laundering.

He also said that the FCA has so far found only 33 companies to be operational. "Many were rejected because they had taken inadequate precautions to prevent damage or to recognize them in the first place," he said. "We have to draw clear lines.

Legal disputes about digital assets can also bring new challenges. Sergey Romanovsky, the CEO and founder of Nebeus, a company based in Barcelona, which gives cash against crypto, found this on the hard tour.

his business almost collapsed under the burden of a court procedure, in which it was claimed that the company had not properly protected a customer's money. The case ended with a judgment in favor of Nebeus, but Romanovsky was difficult by a court decision to temporarily freeze the company's assets due to a technical misunderstanding.

In front of a British court, he argued to keep the $ 1.5 million in a so-called “cold storage” in question-on a device that is similar to a USB stick that keeps digital assets secure by keeping it offline. The court initially considered this to be unacceptable, which led to the securing decision.

In retrospect, there were simple steps that Nebeus should have taken: namely to keep the alleged fraudulent crypto-assets in a format that would better understand the court, "says Romanovsky.

Woolley from Fenergo warns that companies can also fall victim to unexpected regulatory changes. She says the case against anchorage is a reason to be concerned because he makes the supervisory authorities look like they are turning around.

"I am worried that the supervisory authorities issued the license of Anchorage in January last year and come back to it less than 18 months later - the question is why they gave them a license without these systems?" Asks Woolley. "These controls should have been there from day one."

In addition to protection against the dangers of money laundering, the regulatory authorities are now focusing on consumer protection in crypto transactions. In addition to the British FCA, a group of European financial supervisory authorities agreed at the end of March that many crypto-assets are highly risky and speculative and are subject to "aggressive advertising".

Many in the crypto industry expect new regulations from country to country to varying, which may enable companies to move into jurisdiction in which the rules are cheaper for them.

Ian Mason, head of British financial services regulation at the Gowling WLG law firm, says that this potential for regulatory arbitrage is worrying due to the global nature of crypto.

"The regulation must be networked more so that there are uniform, high standards on the cryptoma markets," says Mason.