With Web3 giants like Binance employing 1,000+ lawyers in their compliance departments, it’s clear: the blockchain landscape is getting more regulated. But there’s a problem: a recent survey by Acuiti revealed that 57% of crypto firms are still unprepared for the EU’s new crypto regulation, MiCA – one of the many crypto regulations that have recently come into force globally.
But what exactly is happening with the regulations around the world? How will that affect the Web3 market and its users? How can your startup prepare? Keep reading to see the answers.
A Brief Tale Of Global Crypto Regulations
Sadly, crypto and fintech firms face a patchwork of new rules and enforcement actions across key jurisdictions in 2024.
In the United States, the Securities and Exchange Commission (SEC) continues its aggressive enforcement approach in the crypto space. The regulator has accelerated efforts to bring cases against cryptocurrency platforms, arguing that some tokens constitute securities.
Only in 2024, the SEC has charged the following Web3 companies:
- Binance as an unregistered broker and clearing house offering securities trading.
- Kraken and Coinbase as an unregistered broker.
- ConsenSys, the company behind the popular Metamask wallet, for being an unregistered broker, though this charge was later dismissed.
- TrueCoin with an unregistered securities offering for its stablecoin.
- … and many others.
In the United Arab Emirates, regulators are embracing crypto and blockchain. The Dubai Financial Services Authority is refining its framework, now permitting staking for professional clients. The Virtual Asset Regulatory Authority in Dubai has started issuing operational licenses to major players.
Hong Kong and Singapore are developing their digital asset regulatory frameworks, with both jurisdictions refining conduct requirements for licensed providers and promoting asset tokenization efforts. A new law passed by Singapore’s parliament has quadrupled fines for corporate service providers that fail to comply with AML regulations. The law will require all businesses providing corporate services to register with the Accounting and Corporate Regulatory Authority (ACRA), including firms exclusively serving overseas clients. Under the new law, firms and senior management staff breaching their duties to combat financial crime can be fined up to S$100,000.
The European Union faces a transformative year with the implementation of the Markets in Crypto-Assets Regulation (MiCA) and revised Transfer of Funds Regulation. The EU is also strengthening anti-money laundering controls for the crypto sector through the Anti-Money Laundering Regulation.
Beyond crypto, the EU is advancing proposals for a digital euro and an open finance framework to facilitate data sharing in the financial sector. Non-compliance has been regulated as well. Digital asset entrepreneurs can face steep penalties of up to 5 million euros, depending on the extent of the transgression. Other countries have followed suit: in August, India forced Binance to pay a $2.25M fine for non–compliance.
How Can Web3 Startups Prepare For What’s Coming?
In an effort to become compliant, Web3 companies may face numerous requirements. These include user verification processes, regulatory reporting, data security measures, ongoing monitoring of transactions, and much more, depending on the specifics of your business.
Among these, the need for Know Your Customer (KYC) and Anti-Money Laundering (AML) checks is perhaps the most prevalent—and yet, it’s also the one that will make you lose your clients if done incorrectly.
Why? Because Web3 users rightfully hesitate to share their personal information with KYC providers that they don’t know or trust. And yet regulators demand transparency regarding user identities to ensure compliance.
How can this dilemma be resolved?
Fortunately, the crypto community is creating smart solutions that not only meet user verification needs but also protect decentralization and privacy: the Decentralized Identity solutions. Let’s look into how these work:
Decentralized Identities: Do They Put An End To All KYC Struggles For Your Business And Your Users?
Decentralized Identity solutions, or Decentralized Identifiers (DID), are systems that allow individuals to create and manage their digital identities. Through DIDs, companies can identify users without necessarily seeing or storing their full data – for instance, as part of KYC checks.
According to a study by the World Economic Forum, decentralized identity solutions can reduce the cost of identity verification by up to 86%, as users can leverage previously obtained credentials across different platforms, minimizing redundancy. Additionally, research from Gartner suggests that organizations that adopt such solutions may experience a 30% increase in user engagement due to improved trust and privacy.
However, there’s a significant challenge: almost no DID provider has managed to make their solution both compliant internationally and truly cost-efficient and decentralized. This means that integrating a DID may make your business KYC and AML compliant in one jurisdiction but not in all of your target markets at once.
But not all DIDs have this flaw. DID of Swisstronik is solving this issue by utilizing a decentralized network of KYC and AML providers. Together, these providers cover numerous jurisdictions and make sure that the Apps that utilize Swisstronik’s DID can adapt to local regulatory changes as they occur. So by implementing this kind of DID, a Web3 company can stay KYC and AML compliant even as local regulations change. Plus such setting also lets your business save on user verification costs since you can easily switch between providers based on the price they’re offering. And finally, you can access already pre-verified users – at zero cost.
Summing up, such DID solutions offer a practical path for Web3 businesses to achieve global KYC and AML compliance while keeping costs low and avoiding the challenges of data storage and management. This approach not only enhances user trust and streamlines the onboarding process by giving access to pre-verified users, but also ensures that businesses remain agile in the face of shifting regulatory landscapes.
Finally, these types of solutions demonstrate that the industry can – and wants – to adapt to regulatory requirements. But it also wants to preserve the innovative spirit of blockchain technology. With the right approach, compliance and innovation in the crypto space can go hand in hand and propel the industry’s growth rather than suffocate it.
