Is Costly Compliance Crippling the Crypto Community?

Compliance can be costly, and crypto exchanges are learning the hard way. There is no doubt that crypto is still in its relative infancy but it has certainly come a long way in its 10 year existence. What was once seen as the “Wild West” of finance is now becoming an industry that is heavily bogged down by efforts to comply with regulations. 

Kraken’s Transparency Report

In a Twitter thread posted Tuesday (January 7th, 2020), prominent cryptocurrency exchange Kraken published their annual transparency report. This report emphasizes the growing number of regulatory inquiries and breaks it down by country and regulatory body. A staggering 710 requests were received in 2019, up 49% from 2018, which comes out to almost 2 requests per day. As you can imagine, complying with these inquiries is a massive strain on Kraken, both financially and in terms of time expenditure. It is immediately evident from the metrics that the United States leads the way in requests, with 432 requests coming from their various regulatory bodies.

It is also worth noting that 199 of the requests, or 28%, were deemed “Non-Valid” by Kraken’s compliance team as they did not meet local legal requirements or the requirements of their own internal policy. Kraken still needs to spend time reviewing these requests, so even a non-valid request is still time-consuming and costly for their compliance team. 

Laissez-faire or Legitimacy?

These numbers speak for themselves; what is yet to be seen, however, is how this increasing number of regulatory inquiries will affect innovation in the space. Will the intervention of these government bodies slow the rapid evolution we are seeing in the crypto community? There is historical precedent to believe that increased regulations will hinder innovation but also bring in a much needed sense of legitimacy. Increased regulations will undoubtedly reduce the number of scams in the space and ultimately increase overall confidence in the crypto market. This legitimacy is the light at the end of the tunnel, but that light may be difficult to see right now for exchanges that are drowning in compliance costs.

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