In recent years, the rapid proliferation of cryptocurrencies has prompted global regulatory bodies to intensify their focus on establishing comprehensive oversight frameworks. Organizations such as the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) are spearheading efforts to implement robust anti-money laundering (AML) and know-your-customer (KYC) protocols within the crypto industry. These initiatives aim to balance the promotion of financial innovation with the imperative to prevent illicit activities.
The FATF, an intergovernmental organization established to combat money laundering and terrorist financing, has been at the forefront of setting international standards for virtual assets. Recognizing the potential misuse of cryptocurrencies, the FATF has issued binding guidelines to ensure that virtual asset service providers (VASPs) adhere to stringent AML and KYC measures. These standards require countries to assess and mitigate risks associated with virtual asset activities, mandate the licensing or registration of VASPs, and subject them to supervision by competent national authorities. The FATF emphasizes that without proper regulation, virtual assets risk becoming safe havens for financial transactions of criminals and terrorists.
In 2024, the FATF released its fifth update on jurisdictions’ compliance with its Recommendation 15, which was amended in 2019 to encompass virtual assets and VASPs. This report highlights the progress made by various countries in implementing the recommended AML and counter-terrorist financing (CFT) measures, while also identifying areas requiring further improvement. The FATF continues to monitor emerging risks and market developments to adapt its guidelines accordingly.
Complementing the FATF’s efforts, the Financial Stability Board (FSB) has developed a global regulatory framework aimed at ensuring the comprehensive and consistent oversight of crypto-asset activities. In July 2023, the FSB published its high-level recommendations focusing on the regulation, supervision, and oversight of both general crypto-asset activities and “global stablecoin” arrangements. This framework seeks to address potential financial stability risks posed by the rapid growth of cryptocurrencies and to promote international cooperation among regulatory authorities.
As of February 2025, the FSB has initiated a thematic peer review to assess the implementation of its regulatory framework across different jurisdictions. This review aims to identify challenges and share best practices, thereby facilitating a harmonized approach to crypto regulation worldwide. Stakeholders, including industry participants and policymakers, are encouraged to provide feedback to inform the ongoing development of effective regulatory measures.
Beyond the initiatives of global organizations, individual regions are also advancing their regulatory approaches to cryptocurrencies:
- European Union (EU): The EU has been proactive in establishing a standardized regulatory environment for digital assets. The Markets in Crypto-Assets Regulation (MiCA), adopted in 2024, aims to create a unified framework for crypto assets across member states. MiCA addresses various aspects, including consumer protection, market integrity, and the licensing of crypto service providers. This regulation is expected to enhance legal clarity and foster innovation within the EU’s crypto market.
- United States: The U.S. approach to crypto regulation has been characterized by a combination of enforcement actions and legislative proposals. In February 2025, under the leadership of SEC Chair Paul Atkins, the Securities and Exchange Commission (SEC) established a new crypto task force led by Commissioner Hester Peirce. This initiative aims to provide clearer regulatory guidance and move away from the previous “regulation by enforcement” approach. The task force’s mandate includes developing a robust framework for crypto assets, thereby reducing uncertainty and fostering market integrity.
- China: China maintains a stringent stance on cryptocurrencies, having implemented several regulations since 2013 to restrict crypto trading and protect investors. These measures include bans on domestic cryptocurrency exchanges, initial coin offerings (ICOs), and the participation of financial institutions in crypto-related activities. While China does not recognize cryptocurrencies as legal tender, it considers them virtual commodities. The government’s regulatory approach reflects its cautious perspective on the potential risks associated with digital assets.
The evolving regulatory landscape underscores the delicate balance that authorities must strike between fostering financial innovation and preventing illicit activities. Cryptocurrencies offer numerous benefits, including increased financial inclusion, reduced transaction costs, and enhanced efficiency in cross-border payments. However, their pseudonymous nature and global reach also present challenges related to money laundering, terrorist financing, and fraud.
To address these concerns, AML and KYC protocols have become integral components of crypto regulation. AML measures involve monitoring transactions to detect and report suspicious activities, thereby preventing the integration of illicit funds into the financial system. KYC procedures require VASPs to verify the identities of their customers, assess potential risks, and maintain records of transactions. These protocols not only enhance security but also build trust among users and regulators.
The crypto industry has responded to regulatory developments by enhancing compliance efforts and adopting advanced technologies. Many VASPs are implementing sophisticated AML and KYC solutions, utilizing blockchain analytics, and collaborating with regulatory bodies to ensure adherence to evolving standards. This proactive approach not only mitigates legal risks but also contributes to the maturation and legitimacy of the crypto ecosystem.