Ever since entering the global mainstream, the crypto industry has seen its regulatory landscape evolve and mature quite drastically, with governance landscapes becoming increasingly sophisticated across different jurisdictions.
Moreover, as digital assets have continued to integrate into the traditional financial ecosystem, lawmakers worldwide have sought to devise comprehensive approaches to overseeing the day to day functioning of various crypto entities, especially cryptocurrency exchanges — focusing particularly on their user protection and integrity protocols.
A global overview
In the United States, exchanges are required to register with the Financial Crimes Enforcement Network (FinCEN) as money services businesses, while also complying with state-specific regulations. Not only that, the Securities and Exchange Commission (SEC) maintains oversight of tokens classified as securities, adding yet another layer of complexity to exchange operations.
One key requirement, in particular, under the FinCEN’s Bank Secrecy Act (BSA) is the implementation of the “Travel Rule,” which mandates sharing information about the originators and beneficiaries of any crypto transactions over $1,000.
Similarly, the European Union (EU) too has taken a proactive stance with its Markets in Crypto-Assets (MiCA) framework, aiming to standardize governance rules for crypto tokens across all of its participating members. To elaborate, the framework looks at consumer protection and requires crypto service providers to maintain strict registration and operational standards.
In the United Kingdom, the Financial Conduct Authority (FCA) has implemented robust oversight mechanisms, requiring all crypto businesses to register and comply with stringent guidelines focused on consumer protection and financial crime prevention while in the Asia-Pacific region, countries like Australia have established clear regulatory frameworks through AUSTRAC, requiring exchanges to implement comprehensive Know Your Customer (KYC) and Anti-Money Laundering (AML) measures.
Lastly, South Korea has implemented some of the most stringent regulations globally, requiring exchanges to obtain licenses from the Financial Intelligence Unit (FIU) and maintain real-name verification systems for all users.
Beyond these major jurisdictions, many emerging markets have developed their frameworks. Singapore, for example, has implemented the Payment Services Act, which requires cryptocurrency exchanges to obtain licenses and comply with strict operational standards.
On the other hand, the United Arab Emirates (UAE), particularly through Dubai’s Virtual Assets Regulatory Authority (VARA), has established a comprehensive framework for cryptocurrency businesses, attracting global exchanges seeking to expand their operations in the Middle East.
Broader implications on users and the market
The aforementioned regulatory requirements have had significant implications for both users and exchange operators. KYC and AML procedures have become standard practice, requiring users to provide detailed personal information and documentation before trading. While, on paper, this may seem cumbersome, these measures have proven effective in reducing fraud and illegal activities, ultimately fostering a more secure trading environment.
One exchange that has successfully navigated this complex regulatory landscape is VALR, Africa’s largest cryptocurrency exchange by trading volume. Founded in 2018, VALR has demonstrated how exchanges can thrive amidst strict regulatory compliance amassing $55 million in equity funding from prominent investors including Pantera Capital and Coinbase Ventures (amongst several others).
Since its debut as a spot-only exchange, VALR has expanded its suite of offerings to include spot margin trading, perpetual futures, staking, lending, and even an over-the-counter trading desk option. Most recently, VALR launched the world’s first Bitcoin and USDT perpetual futures pairs against the South African Rand, thus showcasing the unique value propositions regional exchanges can create despite strict oversight.
It also bears mentioning that VALR has secured authorization to trade virtual assets in several different regions — including South Africa and Poland — while simultaneously pursuing additional licenses in Dubai and Mauritius.
Lastly, thanks to its strict compliance measure VALR’s growth trajectory has been extremely eye grabbing, with the platform reaching one million users with a 100% increase in just 12 months. If that wasn’t enough, the exchange has also been serving over 1,100 institutional and corporate clients, with more than 25% of its users coming from outside South Africa.
Looking ahead
As things stand, it is estimated that approximately 560 million people globally own some form of crypto, representing about 6.8% of the world’s population. Not only that, ownership rates have also been growing at a compound annual growth rate (CAGR) of 99%, significantly outpacing traditional payment methods.
Amidst this ascent, the regulatory landscape for cryptocurrency exchanges has continued to evolve, with an increasing focus on user protection, market integrity, and global coordination. In this context, exchanges like VALR have not only embraced regulations but also maintained a steady level of innovation and service quality. Therefore, it will be interesting to see how the burgeoning landscape evolves from here on end.
