With more people looking to invest in cryptocurrency — and some sources asserting that 29 million Americans may soon invest in crypto — there’s no better time to join the industry. Developing a cryptocurrency exchange could open up new revenue opportunities, help you remain competitive, and bring in more customers.
However, to boost your chances of success, you need to overcome one key challenge before launching a peer-to-peer cryptocurrency exchange: regulatory compliance.
While regulation in the crypto space has been a gray area for some time, various countries and regions are developing frameworks to promote fair markets and protect crypto investors.
Here we take an in-depth look at the crypto regulatory landscape in different jurisdictions and offer guidance on how to navigate compliance.
While the cryptocurrency industry is still unregulated in some areas, many jurisdictions recognize crypto’s growing popularity and have developed guidelines for crypto businesses. Here are some of the regulations your P2P exchange needs to comply with in different regions:
P2P exchanges in the United States are regulated by the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), the United States Securities and Exchange Commission (SEC), and, in some cases, state-level regulatory bodies.
According to FinCEN guidelines, P2P exchanges are money service businesses (MSBs). Therefore, they must comply with the Bank Secrecy Act (BSA), a set of regulations developed to prevent the misuse of financial institutions.
The act requires P2P exchanges to help combat misuse by implementing customer due diligence systems, maintaining records of cryptocurrency transactions, and reporting suspicious activities that might signal tax evasion, money laundering, or any other criminal act.
FinCEN also requires P2P platforms to register as MSBs.
Crypto businesses, like P2P exchanges, also fall under the purview of the SEC and CFTC in some instances. The SEC regulates cryptocurrencies classified as “securities,” and the CFTC regulates crypto derivatives like options, futures, and perpetual swaps.
These bodies require exchanges that handle crypto assets to register their businesses before launching operations. They also require exchanges to describe their products and services, disclose audited financial statements detailing crypto issuers’ financial conditions, and provide crypto risk disclaimers to their customers.
Further, banks with digital asset investments are expected to classify digital assets as liabilities in their balance sheets.
The SEC has been known to crack down on exchanges that don’t follow its regulations, sometimes going as far as reporting platforms to the Federal Bureau of Investigation and the U.S. Department of Justice.
However, things are set to change with the exit of former Chair Gary Gensler and the entry of crypto advocate Paul Atkins as SEC Chair. The SEC is expected to develop clearer, more crypto-friendly regulations and review pending cases against crypto businesses to align with President Donald Trump’s positive stance on the crypto industry.
Beyond federal-level regulations, P2P exchanges in the U.S. also have to comply with state rules. These regulations may differ by location, making it important to work with experienced legal professionals.
For example, in New York, P2P exchanges must obtain a BitLicense, a unique license for virtual currency businesses. Conversely, exchanges in states like South Carolina and Montana don’t need state licenses at all.
Other states, like Texas, have a mixed approach: Exchanges that focus solely on transferring virtual currencies don’t need a license, but those that include stablecoins need a money transmission license.
The European regulatory landscape is one of the most developed globally. The Markets in Crypto-Assets (MiCA) framework guides countries in the European Union (EU), while non-EU members like the United Kingdom (UK) and Switzerland have their own regulations.
MiCA is one of the most comprehensive crypto regulatory frameworks. It provides guidelines for crypto-asset service providers (CASPs), like P2P exchanges operating in EU markets, essentially standardizing regulations across the region.
Some of the requirements P2P exchanges must comply with include:
Both MiCA and independent countries’ crypto regulations require P2P exchanges to comply with Anti-Money Laundering and Know Your Customer requirements.
MiCA expects CASPs to implement robust KYC/AML procedures that verify customer identities and actively monitor user transactions to limit the risk of fraud, money laundering, or other illegal activities that can impact the crypto market’s integrity.
Non-EU members also have strict KYC/AML requirements. Turkey, for example, requires the proper identification of customers who transact over ₺75,000 and the reporting of suspicious transactions to the Turkish Financial Crimes Investigation Board (MASAK).
Similarly, exchanges in the UK must comply with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which requires exchanges to maintain proper records, conduct customer due diligence, and appoint Money Laundering Reporting Officers (MLROs).
In order to operate legally, peer-to-peer exchanges that plan to handle stablecoins must also adhere to stablecoin-specific regulations.
MiCA, for instance, requires all EU-operating exchanges to back their stablecoins with liquid reserves of the same value to protect user funds. The framework also caps USD-referenced stablecoin transactions at one million per day.
Other countries have unique stablecoin regulations as well. For example, exchanges issuing stablecoins in Switzerland must acquire a banking license.
Similarly, crypto businesses in the UK are expected to adhere to the Financial Conduct Authority’s (FCA) requirements, such as maintaining proper stablecoin transaction records.
Central and South America have diverse crypto regulations that reflect different governments’ unique approaches to digital assets. Some countries, like El Salvador and Cuba, have welcomed cryptocurrencies and are in the process of refining their regulations. In contrast, others, such as Bolivia and Nicaragua, have not; Bolivia banned cryptocurrencies, and Nicaragua warned its citizens about their risks and show no signs of regulating them.
Here’s a more in-depth look at the state of crypto regulation in Central and South America:
As a P2P exchange, you can only thrive in markets with clear and friendly digital asset regulations. Some of the best jurisdictions in Central, North, and South America include:
While countries like El Salvador are making strides in P2P exchange regulation, the region is still largely unregulated. Unfortunately, this poses challenges such as:
Unfortunately, cross-border P2P transactions within the region can be challenging. With each country implementing its own legal framework, participants must navigate each jurisdiction‘s regulations individually. You may need to comply with varying tax regulations, foreign exchange controls, and AML rules — all processes that can be resource-intensive.
As with Central and South America, Asia has a diverse regulatory landscape, with different countries implementing varying digital asset regulations.
Countries in Asia have mixed reactions to digital assets. Some have employed crypto-friendly policies, others are on middle ground, and others have implemented restrictive regulations. Here’s a breakdown of different countries and their stances:
Japan, South Korea, and Singapore are some of the most prominent markets in Asia, making them excellent options for any business. They’re especially great for P2P exchanges because they have some crypto regulations in place and are refining their frameworks to promote fair and efficient markets.
Here are some of their regulations:
As mentioned, China banned crypto-related activities in 2021. This has had a significant impact on peer-to-peer trading in the region as investors need to become more creative in using P2P trading platforms. Exchanges like Binance and OKX have gained a lot of popularity since the ban.
The ban has also had a ripple effect in the broader Asian region, with countries that support crypto, such as Singapore and Japan, emerging as top choices for crypto enthusiasts.
Australia and New Zealand have relatively clear crypto regulations. Here’s an overview:
The Australian Transaction Reports and Analysis Centre (AUSTRAC) requires P2P exchanges to register with them within 28 days of establishing their services. Exchanges also need to acquire an Australian Financial Services Licence (AFSL) and implement AML/CTF measures, such as monitoring transactions and reporting suspicious activities.
Both jurisdictions have tax implications for P2P trading. The Australian Tax Office imposes a Goods and Services Tax (GST) on exchanges that facilitate crypto trading among Australian residents.
In New Zealand, the Internal Revenue Department (IRD) requires exchanges to pay income tax on their profits. This means you need to maintain proper trading and transaction reports.
There are several key guidelines for P2P exchanges across jurisdictions. These include:
Implementing KYC procedures not only facilitates regulatory compliance in most jurisdictions but also limits the risk of illegal activities like fraud on your P2P exchange. This can build trust, potentially driving traffic to the platform.
Transaction monitoring helps you identify unusual patterns or transactions that could point to illicit activities. This allows you to take proactive measures like freezing accounts or reporting suspicious activity to relevant authorities before any damage is caused to your platform’s reputation.
Reporting suspicious activities promotes compliance with regulatory requirements in most jurisdictions, limiting your risk of legal issues. Proactive reporting can also deter unscrupulous individuals or businesses from using your exchange for fraudulent activities.
How do you comply with cryptocurrency and fintech regulations in your jurisdiction? Read on to find out:
Start by researching local and international regulations that apply to P2P crypto exchanges, including licensing requirements, AML, KYC, CFT, and data protection laws. Seek guidance from your digital asset infrastructure provider and hire an experienced legal team to ensure proper compliance.
Leverage robust KYC/AML software to collect and verify the identity of users and monitor transactions for suspicious activities. Ideally, your software should be able to automate screening, the collection of data like customers’ names and social security numbers, and real-time risk reviews.
This step will vary depending on your jurisdiction. If your region requires licensing or registration, understand the requirements and obtain pertinent documents from the appropriate regulatory bodies.
While transparency is vital in the digital asset space, you should also protect customers’ privacy. Implement secure data handling practices to ensure compliance with data protection laws, such as the General Data Protection Regulation (GDPR).
Protecting user data can instill customer trust and confidence in your platform.
The digital asset regulatory landscape is evolving, with jurisdictions updating and refining their requirements on a near-constant basis. To ensure ongoing compliance, conduct regular audits and swiftly adapt to any changes in the legal landscape.
The last thing customers want is to be blindsided by your exchange’s policies. Clearly communicate your compliance measures and terms of service to users, ensuring they understand the legal obligations of using your platform.
Regulatory compliance can be challenging if you don’t know how to navigate the legal landscape. So, hire legal professionals who specialize in cryptocurrency regulations in your jurisdiction. They’ll help you stay updated on current frameworks and ensure your platform’s operations are legally sound.
As more people join the digital asset space, countries are increasingly developing regulatory frameworks to foster fair competition and protect customers’ investments. As a P2P cryptocurrency exchange, you must comply with these frameworks to operate legally and promote operational efficiency.
With AlphaPoint, you can easily comply with your region’s regulations. We not only provide white-label exchange software with KYC/AML integrations but also offer expert advisory services to help you navigate the nuances of regulatory compliance. AlphaPoint stays on the forefront of global crypto developments to keep our customers current and compliant — no matter where they’re located. Check out our recent joint webinar with Sumsub on MiCA and Travel Rule.
Contact AlphaPoint today to learn how we can help you comply with the ever-evolving regulations in the cryptocurrency industry.
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