Crypto Regulatory Trends, Sanctions and Emerging Risks: Webinar Recap

On Wednesday, December 4, 2024, Merkle Science hosted a one-hour webinar called Crypto Regulatory Trends, Sanctions and Emerging Risks.

Moderated by Merkle Science's Director of Law Enforcement Affairs Robert Whitaker, the event featured Binance's Global Head of Transaction Monitoring Alex Côté, Paxful's Chief Compliance Officer Manfred Bekeris, and McGuireWoods' Partner David Hirsch as panelists.

You can watch the webinar on-demand here. 

This article will recap the key talking points of the webinar, including the most significant crypto regulatory developments in the US and worldwide, emerging risks and threats, and best practices for compliance in 2025 and beyond.

Changing Crypto Regulations in the US and Beyond 

According to Bekeris, the Republicans have historically deregulated industries to promote economic growth, which accounts for the positive economic growth since Donald Trump’s presidential victory in November. 

"The administration has set very clear goals in terms of competing with China and the EU, being competitive, and bringing Bitcoin and innovation back to the United States. So that's encouraging. However, in practice, which elements are going to be pulled from the existing frameworks?" he said.

Bekeris described the legacy patchwork frameworks for regulation, which include money transmitter licenses (MTL) and the Nationwide Multistate Licensing System (NMLS). He mentioned that some states, such as California and New York, are taking the lead in redefining crypto regulation. 

"In the best case scenario, we get a clear policy saying, 'This is how you do things.' At worst, you get guidance on how to arrive at that decision yourself," he said, citing the blowback from the FTX collapse as an additional challenge for crypto regulation.

While the US may adopt a progressive stance during the Trump administration, the country is a bit of a latecomer when it comes to crypto regulation. Côté believes this fact could lead to the issue of compatibility with other global regulations.

"If you introduce a regime that is either inherently incompatible or too onerous compared to other more international regulators, international laws, you risk alienating that industry. You risk having offshore companies value other jurisdictions more so than the US And I feel like that's a great fear," he said. 

Because of this possibility, Côté explained that the US must tread a fine line between ensuring regulatory rigor and compatibility with existing regulations. 

The Evolution of Blockchain Analytics 

In this environment, Côté argues that the biggest challenge for businesses is real-time intelligence due to crypto's pseudonymous nature. "Understanding and being confident in the entity behind an address can be extremely difficult, especially given the fact that new blockchain addresses are being added every day," he said.

Côté said that businesses previously only needed to integrate with any blockchain analytics vendor and then monitor exposure to sanctioned wallets through a blacklist. Now, however, businesses need much more sophisticated tooling.

In addition to real-time intelligence and risk scoring, Côté emphasized that enterprises must seek a sophisticated rule engine. 

"There's really hundreds, if not thousands of parameters that you can build into an automated risk score that you can then build a model off of in terms of what you want to reject, what you want to accept," he said.

This risk-based approach is necessary to mitigate indirect exposure and account for uncertainty that will always exist in blockchain analytics.

Hirsh pointed out that guidance for crypto businesses can also have a significant unintended consequence: Criminals can use it for their laundering strategy. 

"[If the regulator says] you only have to look five hops deep. Now you've just given a roadmap to bad actors to just add some additional hops, and they're free and clear. So it's a lot of cat and mouse," he said.

Bekeris also shared that organizations must balance between following compliance and their business needs. Even though a minuscule number of prospective customers are applying from sanctioned accounts, now even legitimate customers must contend with lengthy KYC and compliance processes. 

"When you're onboarding customers, you're running them through the lists and this has been, historically, super inefficient… You're hitting good people with long onboarding processes just because their name matches," he said, adding that he heard a very common name, like John Smith, was recently put on a sanctions list.  

According to Bekeris, finding this balance will be one of the defining issues of compliance in the future. "How do you do the right thing at a scale without strangling the business?" he said.

Conclusion 

The crypto landscape is rapidly evolving. With the reelection of Trump, who has promised a more pro-crypto administration this time around, the US may move beyond the current patchwork of regulation and seek compatibility with international crypto regimes that preceded it.

In this regulatory landscape, crypto businesses must use blockchain analytics tools to respond to threats in real-time, categorize them based on risk, and minimize exposure while providing a strong user experience to legitimate traders. 

A tool like Compass will help businesses execute these functions through a fully customizable rules engine that enables real-time, automated monitoring based on behavior rather than only a blacklist. 

Watch the full webinar discussion here and contact us for a free demo of Compass.