Jai Sahu
In 2023, crypto companies received 11 fines, a significant increase from an average of less than two per year in the prior five years.
Crypto firms found themselves in the spotlight of regulatory scrutiny, collectively shouldering a hefty burden of nearly $6 billion in fines, primarily stemming from Anti-Money Laundering (AML) violations and shortcomings in customer verification processes in the past year.
This marks a noteworthy turning point, with crypto and fintech entities facing higher fines for control deficiencies than the entire conventional financial sector for the very first time.
Surge in Crypto-Related Penalties
The cumulative fines, reaching a substantial $5.8 billion in 2023, which includes a notable $4.3 billion penalty imposed on the crypto exchange Binance, serve as a stern warning from U.S. prosecutors. This sum markedly eclipsed the $835 million fines paid by traditional financial service institutions, marking the lowest level of fines recorded in a decade.
Dennis Kelleher, the CEO of Better Markets based in Washington, an organization advocating for stricter regulations, observed that these figures reflect more on challenges within emerging financial sectors rather than an enhancement in the traditional banking sphere. He emphasized that the prevalent fraud and illicit activities in the prominent crypto industry have prompted regulators and prosecutors to channel their resources towards curbing such behavior and preventing its escalation.
Data gathered by compliance software provider Fenergo reveals a notable 30% increase in fines for money laundering and other financial misconduct violations, reaching a total of $6.6 billion. However, this figure remains below the peak of $11.3 billion recorded in 2015.
The past year witnessed a significant uptick in fines imposed on crypto and payment service providers. Crypto firms were subject to 11 fines, a substantial surge compared to an average of fewer than two per year in the preceding five years.
David Lewis, former head of the Financial Action Task Force and current Chief of Anti-Money Laundering at Kroll, raises concerns about the oversight of crypto firms across different jurisdictions. He underscores the mounting risks and advocates for the establishment of global standards to combat criminal exploitation of regulatory loopholes.
The Potential for Further Crypto Fines
Andrew Barber, a partner at Pinsent Masons, anticipates that fines against crypto and payment entities may continue to rise in the upcoming years as governments implement new regulatory frameworks. Companies that previously operated with limited regulatory supervision are likely to require time to adapt, and the scrutiny on their Anti-Money Laundering (AML) controls is expected to intensify.
Charles Kerrigan, a crypto specialist and partner at the law firm CMS, suggests that fines could potentially decrease in the coming years due to the tighter regulation of the crypto industry compared to its early stages. Nevertheless, Kerrigan acknowledges that fines may still occur as regulators seek to assert their authority in the crypto space, despite the crypto market’s smaller scale in comparison to the traditional financial system, with a global market cap of $1.8 trillion versus the hundreds of trillions of assets in the traditional financial sector.