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Huge Fines for Poor Cryptocurrency Controls

Author: Syedur Rahman  9 January 2024
2 min read

Syed Rahman assesses data that highlights the compliance challenges facing the crypto sector.

The fines imposed on crypto and fintech companies for inadequate controls in 2023 totalled far more than the penalties given to the traditional financial system.

Data shows that crypto and digital payments companies had to pay $5.8 billion in fines last year for failings relating to customer checks, anti-money laundering controls, sanctions and other financial crime matters.

This total, which does include the $4.3 billion fine imposed on crypto exchange Binance, is almost seven times the $835 million in fines paid by traditional financial services groups. It has to be viewed as a stark indicator of the crypto sector’s need to identify and weed out bad practice – both to ensure consumer confidence and pre-empt any tighter regulation that may stifle the market.

The data, compiled by compliance software provider Fenergo, showed that the number of fines imposed on crypto and payments providers increased significantly in 2023. Last year, crypto firms recorded 11 fines whereas the average had been just two a year for the previous five years. In 2023, there were 27 fines imposed on payments firms, compared to an annual average of five from 2018 to 2022.

This upward trend is likely to continue as more jurisdictions look to regulate crypto activity and penalise those within the sector that do not meet the standards required. Regulators in a number of jurisdictions, including the UK’s Financial Conduct Authority, have warned payments firms of the need to improve their approach to the risks the sector faces.

While such figures will prompt a degree of hand wringing from those who see the crypto sector as little more than a vehicle for financial crime, it is important to view matters in proportion. The crypto sector’s global market capitalisation is a very small fraction of that of the traditional financial system. Recent estimates put it at around $1.8 trillion, compared to the hundreds of trillions held by traditional finance. The fines imposed, therefore, may be large but they relate to what is a relatively small financial sector – and one that is in its infancy.

There is an argument to be made that some of the fines can be seen as the equivalent of the authorities firing a warning shot across the bows of the cryptocurrency sector. The situation may become less dramatic if the authorities feel they have now made their point and / or those in the sector respond by ensuring they eradicate their shortcomings that gave rise to the penalties.

The figures published are certainly eye-catching. But whether they are a clear indicator of the future remains to be seen.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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