Kraken Rails Against Rising Cost of Compliance for Crypto Exchanges
San Francisco-based Kraken says the increasing number of law enforcement requests across the globe is placing a significant strain on crypto exchanges. Since 2018, several platforms have been forced to go out of business for reasons other than being victims of cyber thefts.
Global Rise in Compliance Costs
In a Twitter thread published on Tuesday (January 7, 2020), Kraken revealed a snapshot from a report issued by its compliance team. The snapshot shows an almost 50 percent increase in the number of law enforcement requests received by the crypto exchange platform.
According to Kraken, the industry is currently under the cush of a massive increase in oversight by governments and regulatory agencies. Kraken reportedly received 710 information requests in total in 2019. This number almost exceeds all the information requests received between 2015 and 2018.
For Kraken and other crypto exchanges, this increase in information requests comes with an associated hike in the cost of compliance. This cost increase becomes even more problematic given that a significant percentage of some of these requests are non-valid. Of the 710 requests received by Kraken, 199 turned out to be non-valid.
Another point of concern for crypto proponents will be the nature of the information requests which usually involve customer data. More than half of the information requests received by Kraken were subpoenas with 62 percent resulting in the provision of user data that impacted over 1,200 accounts.
The U.S. still leads the way in terms of active oversight of crypto trading platforms. According to Kraken, 61 percent of all information requests were from U.S. regulators. However, the crypto exchange says other jurisdictions are following the footsteps of the U.S. in exerting greater pressure on exchange platforms.
In 2019, exchanges in the U.S. were forced to geofence certain crypto tokens rather than handle expensive subpoenas and licensing requirements. Some platforms even chose to exit the market entirely with the likes of Binance having to create separate U.S. divisions to cope with the nature of crypto regulations in the country.
Places like South Korea also experienced an increase in government regulatory measures that forced smaller volume exchanges out of business. Major crypto trading avenues like Bithumb are also facing massive tax bills running into millions of dollars.
The tightening state of crypto regulations has even moved from discrete jurisdictions to the international stage. Intergovernmental agencies like the Financial Action Task Force (FATF) have issued guidelines to combat money laundering related to crypto trading.