Crypto Exchange Compliance Report 2024

Global Regulatory Landscape For Crypto Exchange

Cryptocurrency adoption is growing around the world. As the number of cryptocurrency users continues to increase and diverse decentralized applications emerge in the industry, by 2023, the estimated global cryptocurrency holding rates stand at an average of 4.2%, with over 420 million cryptocurrency users worldwide.

The increasing adoption of cryptocurrency is generating numerous technical innovations and investment opportunities. However, alongside these opportunities, the rapid expansion of the crypto industry also introduces substantial risks. The primary challenges confronting this emerging sector are centered on Security and Regulatory Compliance, especially for Crypto Exchanges.

Nowadays, influenced by diverse political systems and economies around the world, attitudes toward cryptocurrency trading vary widely across different regions and countries, resulting in diverse and vastly different regulatory approaches to managing crypto exchanges.

Global regulatory policies

Crypto Exchange Compliance

Exchanges

The report covers the top 10 crypto exchanges in the industry, based on their market cap, 24-hour trading volume, and ratings from TokenInsight's official website. These exchanges have a significant market presence in the current market and with outstanding historical performance and activity. As industry leaders, they serve as key representatives of the current cryptocurrency market landscape.

Analysis Indicator

Licenses

A crypto exchange license is a regulatory permit that allows a crypto exchange business to operate legally. Obtaining a crypto exchange license is a critical step in achieving regulatory compliance. It is crucial for operating legally, building trust with customers and partners, accessing financial services, protecting consumers, and ensuring long-term business sustainability in the rapidly evolving crypto industry.

AML

Anti-Money Laundering (AML) Policy is a set of regulations and procedures designed to prevent individuals from disguising illegally obtained funds as legitimate income. In the crypto sector, AML practices primarily involve Know Your Customers (KYC), Know Your Transactions (KYT), and Customer Due Diligence (CDD) protocols. Through AML procedures, crypto exchanges could effectively prevent suspicious activities that could involve money laundering and other financial crimes through digital assets. Implementing robust AML procedures can help crypto exchanges comply with regulations, build trust and credibility with customers, and maintain the integrity of the financial system within jurisdictions.

Regulatory Cooperation

Collaboration with regulators and law enforcement agencies is crucial for combating financial crimes and ensuring compliance within crypto exchanges. This cooperation is indispensable for crypto regulation and enforcement. By cooperating with law enforcement, exchanges can assist in investigations, provide transaction data, and trace, freeze, or recover crypto assets linked to criminal activities.

Analysis

Licenses

In this section, TokenInsight compiles comprehensive licensing information for the 10 selected crypto exchanges. This includes the MTL and MSB licenses from the U.S. as well as regulatory licenses from various other countries and regions. Together, these details present the current licensing landscape of the leading crypto exchanges.

• U.S. Licenses

In the United States, there is no unified federal crypto exchange license. Instead, crypto exchanges need to obtain multiple licenses and registrations at both the federal and state levels, primarily MSB and MTLs.

• Other Licenses

Among all the selected exchanges, Binance stands out by holding the most licenses, spanning six continents and a total of 18 countries. Notably, these countries do not overlap significantly with those where other exchanges hold licenses. Therefore, Binance's license status is listed separately.

KuCoin and HTX rank second, both holding licenses in five countries, while OKX and Gate.io are tied for third place. MEXC has no public information about licenses.

• Prohibited Countries

TokenInsight has collected the current Prohibited Countries Lists from all selected exchanges through public channels. By integrating this data with the Global Cryptocurrency Legality Map, we calculated two coverage ratios for the prohibited countries of 10 exchanges: the Illegal & Sanctioned Countries Coverage and the Legal & Regulated Countries Coverage. These two indicators combined provide a comprehensive view of the overall compliance of each exchange in service-prohibited areas.

The Illegal & Sanctioned Countries Coverage ratio indicates the extent to which an exchange refrains from operating in countries where cryptocurrency is illegal or under sanctions. A higher overlap ratio suggests better compliance with international regulations and sanctions, demonstrating the exchange's commitment to avoiding operations in high-risk jurisdictions.

The Legal & Regulated Countries Coverage ratio reflects the extent to which an exchange operates in countries where cryptocurrency is legal but strictly regulated. A higher ratio indicates that the exchange has a cautious attitude toward these countries, actively ensuring compliance with local laws and regulatory frameworks, and trying to avoid operations in medium-risk jurisdictions.

AML

• KYC

Regarding KYC requirements, Binance and Bitfinex have relatively stringent requirements. Binance's advanced KYC process requires enhanced due diligence to further improve security. Bitfinex's requirements are more extensive, demanding secondary photo identification, financial questionnaires, and bank statements for advanced KYC verification.

In terms of unverified user restrictions and withdrawal limitations, OKX does not support unverified users (including both new users and existing old users) to trade, withdraw, or access any crypto services and products. Among all the exchanges, KuCoin's daily withdrawal limit for verified users is the lowest, at $999,999 per day.

• KYT

According to current public information, all exchanges except HTX and MEXC conduct Hierarchical Risk Management on users during the Customer Due Diligence (CDD) process. Regarding transaction monitoring, all exchanges conduct real-time and continuous surveillance of trading activities, though their internal monitoring and risk control procedures may differ.

Regarding travel rules, among all selected exchanges, some of them have joined notable third-party alliances or partnered with specialized solutions to further enhance their compliance. For example, Binance has joined the Global Travel Rule Alliance to promote standardized compliance practices. Gate.io, BingX, and OKX integrated with CODE solution to comply with South Korea's Travel Rule.

• External Vendors

External vendors play a crucial role in ensuring compliance with AML regulations for crypto exchanges, particularly in the areas of Know Your Customer (KYC) and Know Your Transaction (KYT). These vendors provide specialized solutions and services that help exchanges adhere to regulatory requirements and mitigate risks associated with transactions.

Collaboration with Regulators

• Law Enforcement Request

With the exception of HTX and BingX, all exchanges have provided public channels for regulators to submit law enforcement case requests. Notably, Binance, KuCoin, and MEXC have implemented their own independent Law Enforcement Request Systems.

According to available data, only Binance and KuCoin are exchanges that have publicly disclosed the number of requests they have addressed. Specifically, KuCoin has also provided served registered officer number, 6,170, as of the latest update.

• Law Enforcement Assistance

Cryptocurrency exchanges need to cooperate with jurisdictional regulators and assist with case investigations to comply with regulations and ensure compliance. Actively working with regulators helps exchanges build strong reputations.

Through proactive collaboration, exchanges can stay ahead of regulatory changes and demonstrate their commitment to maintaining a transparent and secure trading environment. This collaborative approach not only mitigates potential legal risks but also enhances the credibility and reliability of the exchange in the eyes of investors, partners, and the broader financial community.

Efforts for Regulatory Compliance

• Team

Binance sets a high standard in transparency regarding its compliance team composition and expertise. The exchange has a team of approximately 750 core and supporting compliance personnel. Gate.io discloses less detail but highlights that its risk control team directly reports to the CEO. Other exchanges also state they all have dedicated compliance teams with relevant professional backgrounds. However, they typically do not disclose publicly the specifics of their compliance team compositions or the reporting structure.

• Educational Training

The above are some of the key contents of the entire report. For further details, please download the full text of the report. Want to learn more about crypto exchange compliance? Download and read it now for free!