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Recently I spoke with a few people in my network and discussed some of the current and potential challenges being faced by Compliance leaders who currently work in the Crypto space. I ask questions like these all of the time but for this piece I have used insights from two people I know well, Mario Duron and Alex (Alex is a pseudonym). 

Mario is the CCO for a US based Crypto Exchange and Alex who works in the Payments function for a Bank that works in this space too. Both have tremendous experience working in the Digital Asset space and have as much experience with Crypto as anyone! 

 

Question 1: What are the current challenges being faced by Compliance Leaders who work in the Crypto space today? 

Mario: “Any Crypto company, provider or non-traditional financial firm is faced with heightened levels of regulatory requirements and standards. With these expectations and requirements entity/company hyper-growth can pose a challenge to staying within regulatory lanes. The business has to find a balance between growth and a culture of compliance which ultimately begins at the top”. 

On a broader note, Mario touched upon licenses and stated that “State level registrations and MTL requirements are difficult to obtain as there are so many states and they all tend to have varying levels of requirements, so a team is needed to support this effort. The alternative for a Compliance Officer is spending up to 80% of your time just getting licenses! Having a licensing team is paramount to a successful program, not to mention audits and re-applications.” He stated that “another major challenge is the application of risk in the crypto space, as it is described as an inherently high risk product!

“Since it is necessary to acquire a Money Transmission License (MTL) in most states as a crypto exchange/transmitter, a licensing plan must include the appropriate level of experience, support and patience in order to be successful. The right team needs to be in place to acquire and maintain MTLs, not to mention liquidity for fees and surety bonds. This can be challenging for small market entities beginning the process. The right timeline is also key. Entities should be ready to spend at least 1 year acquiring the majority of licenses and in some cases 2 years. Licensing must be done with focus and patience”.

Being able to assess the risk correctly is key, and not just the documents in hand but knowing how these risks will play out in an exchange, even if it is just 1 cryptocurrency as all customer types can ultimately use these currencies in different ways.” I loved when Mario stated that “Compliance Officers don’t like change.

After I laughed he went on to say that change implies “that you have to make changes and do something new, this being said the changes needed to be approved and making an alteration to risk assessments as one example need to be viewed and then reviewed by your Board. The key is to keep talking about changes as they always take time to be officially brought in.” It seems that not all updates or requests coming out of the SEC or any government bodies will mean that you need to rip up the current manual, but the modern day Compliance Officer in this space needs to be aware that things will change, and maybe quite frequently, but it is about having your team and set up streamlined and able to operate efficiently to deal with and grow with these changes.“Chief Compliance Officers do not like change. We assess, build, test, deploy and follow up, but with an unclear regulatory landscape for the crypto industry, change is something CCO’s must be ready for. The usual yearly risk assessment with board approval will no longer suffice as it needs to be a living document with regular changes and updates. Here having a team who is empowered to make the necessary changes is the key for success. It falls upon the CCO to keep the board apprised and to continuously maintain lines of communication open so that when change does happen they are more open to the possibilities it may bring”.

I asked Alex the same question: They started by also saying that there can be, even to this day “Executive and management level employees at established companies will state that Crypto is simply high risk but will likely now know all of the details required to make this statement.” 

Alex, given their role is well positioned to share many examples of where exchanges and businesses may not always be aligned, and they stated that “there are still miss-alignments in place with the product and other teams. Firms who have a crypto portfolio are struggling to define their risk appetite, but maybe do not really understand the nuance. This is a challenge which in turn creates more struggles for the business as a whole, and there may be too many controls put into place, which is a miss-use of resources too.” It was great speaking with her on this topic in general as Alex’s worked in the Crypto space for around 10 years and back then there was a very different set of challenges, but perhaps more now as everyone tends to have an opinion, especially at the leadership level. Whereas 10 years ago, many seemed to be honest about their lack of intel in this space and could openly say they don’t know much about Crypto, unfortunately in 2024 this is no longer acceptable if you’re an Exec at a firm that operates in the digital asset world of course. With this updated expectation that everyone needs to have their opinion and thoughts explored they said that “this ultimately creates more dialogue, interactions and meetings with management and the compliance teams, which of course slows things down. If there is a shared vision of the intention for a Crypto business then we can avoid these issues, but there is always potential to cause additional issues.” I appreciated that Alex mentioned that most firms do involve AML & Legal teams earlier on compared to a few years back, when facing new changes in this environment. 

 

What is the future of Compliance in the Crypto space?  

Mario: “Artificial Intelligence will be a “gamechanger” with generative AI in particular. This will help Compliance teams to mitigate risks and will help them to be more nimble and faster. AI can assist to discern high-risk typologies more quickly, perform menial tasks and free the analyst/investigator to focus on cases which warrant more scrutiny. Future compliance practitioners must be ready to understand and incorporate AI technologies/functions throughout their program to better detect and mitigate increasingly advanced threats”

Alex: “We should see more talent with varied backgrounds across Legal, Product, Traditional Banking all combining in this space as this mesh will enable Crypto to no longer be stand-alone, there has to be continued integration. FIAT knowledge is key. A successful company will likely be made up of teams who have traditional FI experiences, one reason for this is the common banking partner model, so someone must be aware of how this partner operates. Crypto is not overly innovative, the existing “rails” and structures are in place from the existing financial services models. If Crypto is the cherry on top, you still need to know how the cake was made!”

(That last line may be the best sentence in this whole blog!!!)

 

Is Crypto a good place to be for a Compliance Officer now and in 2025 (and beyond)? 

So I ended by asking Mario if he would suggest that someone should get into this space… “If someone is forward thinking and wants to “build again”, and is open to learning then crypto is definitely the place to be. The chance to build new frameworks, controls and new ways to operate makes it an exciting time. There is a great opportunity for people who are interested in this ever evolving space. The basics of traditional finance “TradFi” still apply with AML/CTF frameworks and systems, but a real question remains…. how will the Analyst, Investigator, Manager, BSA Officer or Chief Compliance Officer augment/adjust/improve their program? It begins with education. Anyone entering this journey must be a self-advocate and own their journey. Study of all manner is necessary to gain a beginning working knowledge of crypto.. From The Bitcoin White paper, to social media, to online publications, to influencers, to research papers, to online courses, to technical analysis, to industry solution providers, these are all valuable sources of knowledge and context. The new crypto practitioner must deep-dive and search for crypto knowledge in the unlikeliest of places. This is exactly how upgraded my TradFi compliance experience to where it is today”.

Alex advised that if there is a chance to, that “you should be to get into your current companies Crypto initiatives, this way you can leverage by learning this space, coinciding with taking on credentials and additional training and courses. Fintech Banks like Stripe, Visa etc all offer a “fusion” of services, which can enable continued learning.” I asked Alex what they likes about the space, they said that “it requires a lot of cross team collaboration, which in itself is very innovative. There are always new partners and programs being built. There are generally less fully built out functions to run with, so you need to be ready to roll up your sleeves”. 

I hope that these insights help anyone who is either at the start of their Crypto Compliance journey or is just interested to hear what it’s like on the other side! 

Our expectation is that there will always be a need for people who have Crypto experience to take on new roles at Exchanges of course, but as both Mario & Alex agreed: If you have that foundational knowledge of the financial services systems, an ability to work with innovative technologists, product teams and to be able to work in a fast paced environment, then you should enjoy your role at a Crypto firm. Hiring is not too different from that of any startup or digital / tech focussed organization but the main differences seem to be less about the Compliance and Risk of it all, more so that reality that you will face off with various teams and be faced with regulatory changes (nothing new there right!?) and of course ride the wave of potential more Winters on the horizon.   

Matt Lang - Founder

If you want to help contribute to a blog article with the Wayoh team, please contact me directly.

matt@wayoh.co

With thanks to:

Mario Duron

Chief Compliance Officer - US Crypto Exchange