Global Crypto Regulation: Key Themes, Laws & Tips

For years, the crypto industry operated in a regulatory gray area, leading to devastating incidents like the FTX collapse and the Terra Luna crisis. But now, the tide is turning, and fast. Governments and institutions worldwide, particularly in the European Union with MiCA and DORA, are introducing comprehensive regulatory frameworks aimed at bringing clarity and accountability to Web3. Is regulation a net positive for crypto? While the debate continues, one thing is certain: the industry is under scrutiny like never before.

For the first time, crypto assets are at the center of regulatory discussions, much like Web2 once was. With Hacken’s direct involvement in shaping these discussions, we’re here to guide our clients—existing and new—through this pivotal moment. In this article, we’ll explore the core questions: What are the new rules? Who is affected? What are the consequences of non-compliance? And most importantly, what steps should you take next? Let’s dive in.

Why Regulate Crypto?

For over a decade, the crypto industry thrived under a self-regulation model, enabling rapid innovation but lacking accountability, as seen in high-profile failures like the FTX collapse and Terra Luna crash, alongside $9B lost to hacks and scams. This unstructured era is now over, as policymakers worldwide adopt robust regulatory frameworks to ensure control, resilience, business certainty, consumer protection, and investor confidence. From outcome-based and risk-based regulations in the EU and UK to enforcement-driven models in Asia, these approaches aim to provide clear rules, attract capital, and foster innovation while addressing gaps and mitigating risks, positioning compliant nations as leaders in the global crypto economy.

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Key Crypto Regulatory Themes

CASPs and VASPs

Globally, a clear trend is emerging to classify crypto companies as CASPs (Crypto Asset Service Providers) or VASPs (Virtual Asset Service Providers), ensuring they meet compliance standards akin to traditional financial entities. Frameworks like the EU’s MiCA and the FATF’s guidelines emphasize this classification, covering activities such as trading, custody, and exchange of virtual assets.

Regulatory Sandbox

Regulatory sandboxes bridge innovation and compliance by enabling projects to test technologies under regulatory oversight, fostering collaboration to refine frameworks and solutions. These controlled environments, like those in the EU and UAE, reduce uncertainty, accelerate market entry, and adapt policies based on real-world use cases.

The European Blockchain Sandbox exemplifies agile regulation and multistakeholder collaboration. Hacken’s participation in security audits, DLT markets, and RWA tokenization highlights the sandbox’s role in fostering compliant, innovative blockchain ecosystems while ensuring responsible technology evolution.

AML/CFT Compliance

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) have long been foundational requirements across global financial systems, with their relevance further amplified by the Financial Action Task Force’s (FATF) Travel Rule. This regulation obliges virtual asset service providers (VASPs) and financial institutions to record and share originator and beneficiary information for transactions. Such measures enhance transparency and mitigate risks associated with financial crimes, forming a critical pillar of global crypto guidelines.

AML/CFT frameworks reflect international efforts to create a coordinated regulatory and supervisory framework for crypto assets. Countries like the United States, the EU, Singapore, and the UAE have embraced these standards, integrating the Travel Rule into their local AML directives. A notable trend within these frameworks is the increased focus on live monitoring, which is essential for real-time identification and mitigation of risks.

Hacken Extractor exemplifies this approach, offering live monitoring capabilities that align with AML requirements in most jurisdictions. This solution not only supports regulatory compliance but also ensures a secure crypto ecosystem by leveraging blockchain’s transparency for continuous risk assessment. While challenges such as interoperability of Travel Rule technologies persist, collaborative efforts between regulators, industry stakeholders, and innovative solutions like Hacken Extractor are paving the way for a safer and more compliant crypto industry.

Privacy and Security Concerns

Privacy has emerged as a cornerstone in crypto regulations globally, with the General Data Protection Regulation (GDPR) of the EU serving as a benchmark. GDPR emphasizes transparency, user control over personal data, and robust data security. These principles have influenced similar frameworks worldwide, including California’s CCPA (California Consumer Privacy Act) and Brazil’s LGPD (Lei Geral de Proteção de Dados).

In the crypto ecosystem, these laws pose unique challenges, particularly regarding blockchain’s immutability, which can conflict with GDPR’s ‘right to be forgotten’. To reconcile these, technologies like zero-knowledge proofs and advanced encryption methods are being implemented to ensure compliance while maintaining blockchain’s integrity.

Distributed Ledger Technology (DLT) Regulation

DLT regulation is becoming central to global crypto frameworks, reflecting its role as the backbone of blockchain innovation. Frameworks like the EU’s MiCA establish clear operational and security standards for DLT providers, focusing on resilience, data integrity, and governance. Similarly, jurisdictions such as the UAE emphasize transparency and compliance in DLT systems, ensuring robust infrastructure to mitigate risks.

These regulations balance innovation with accountability, pushing DLT platforms to meet high standards for security and operational transparency. As highlighted in global reports, compliance with DLT-specific rules not only ensures legal alignment but also fosters trust and legitimacy in a rapidly evolving ecosystem.

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Crypto Regulation In The United States

The U.S. regulatory landscape for cryptocurrencies reflects both growing adoption—16% of adult Americans have engaged with crypto—and significant challenges due to fragmented oversight. At the federal level, efforts have largely focused on enforcing anti-money laundering (AML) measures, such as the FATF’s Travel Rule, and managing stablecoins as payment instruments, while broader federal legislation remains elusive. Proposals like the Blockchain Regulatory Certainty Act and the Financial Innovation and Technology for the 21st Century Act aim to clarify cryptocurrency classifications, but a comprehensive framework has yet to materialize.

State-level initiatives like New York’s BitLicense, a pioneering regulatory framework for virtual currencies, stand in stark contrast to the more lenient approaches of states like California. These differing standards create a complex compliance environment for crypto businesses. Federal agencies, including the SEC and CFTC, continue to dispute jurisdiction over digital assets, with the SEC treating many cryptocurrencies as securities and enforcing actions against industry leaders. Meanwhile, other agencies, such as FinCEN and OFAC, emphasize compliance through sanctions and transaction monitoring.

Stablecoins remain a key focus, with proposals advocating their treatment as insured depository instruments, aligning them with traditional banking regulations. However, stablecoin governance remains piecemeal, and the Federal Reserve’s cautious exploration of a Central Bank Digital Currency (CBDC) underscores ongoing hesitancy to craft a unified crypto strategy. While regulatory clarity improves incrementally, the U.S. framework remains defined more by the enforcement of existing laws than by forward-thinking innovation, leaving crypto businesses navigating a fragmented and often inconsistent landscape.

Crypto Regulation In The EU

DORA (Digital Operational Resilience Act) and MiCA (Markets in Crypto-Assets Regulation) are two essential EU regulations that aim to strengthen the stability and security of financial services and crypto markets.

MiCA pushes uniform licensing rules for crypto-assets, while DORA mandates cybersecurity standards.

European Union Cryptocurrency Regulation (MiCA)

The Markets in Crypto-Assets (MiCA) Regulation marks a transformative milestone for the European Union’s approach to crypto regulation, setting a global precedent. The European Securities and Markets Authority (ESMA) is responsible for developing technical standards, guiding the application of MiCA, and ensuring compliance across the European Union.

MiCA meticulously balances fostering innovation with ensuring investor protection, providing a comprehensive framework for Crypto Asset Service Providers (CASPs). It mandates both transparency and accountability, introducing mechanisms such as robust complaint-handling procedures, clear conflict-of-interest policies, and prudential standards that ensure a fair and resilient crypto market.

MiCA applies stringent requirements for CASPs, whether they are financial entities already licensed for other services or non-regulated entities entering the crypto space. Licensed entities must notify their home Member States’ National Competent Authorities (NCAs) of their crypto activities, while new entrants face a rigorous authorization process that includes anti-money laundering (AML) controls and clear business model disclosures.

One of MiCA’s standout features is its detailed complaint-handling framework, which obliges CASPs to establish accessible, transparent procedures reviewed annually. Staff must possess the expertise to handle complaints promptly, with decisions communicated in a timely manner. These requirements reflect MiCA’s commitment to building trust in the ecosystem.

MiCA also enforces policies to identify, mitigate, and disclose conflicts of interest, requiring CASPs to publish measures on their websites. This proactive approach enhances transparency and accountability, addressing long-standing gaps in crypto governance. Beyond operational mandates, MiCA introduces prudential standards, risk management protocols, and AML mechanisms, ensuring a robust regulatory environment.

On 30 December 2024, all MiCA provisions become fully enforceable. MiCA’s vision of a standardized and transparent crypto market not only strengthens the EU’s financial stability but positions Europe as a blueprint for global crypto governance, offering a path for other regions to follow.

Digital Operational Resilience Act (DORA)

The Digital Operational Resilience Act (DORA) marks a pivotal moment in cybersecurity, as it extends regulation to Web3 components for the first time. While industries have long relied on ISO and other standards for Web2 resilience, DORA establishes itself as the leader in operational resilience for blockchain-based entities like wallets, smart contracts, and bridges. This regulation not only aligns crypto businesses with traditional financial standards but also ensures a secure and stable financial ecosystem within the EU.

Key DORA Requirements:

• ICT Risk Management Framework: Organizations must assess vulnerabilities, integrate risk strategies, and implement real-time monitoring and automated protections.
• Cybersecurity Measures: Robust systems including penetration testing, continuous monitoring, and incident response plans are mandatory to safeguard against evolving threats.
• Incident Classification and Reporting: Entities must establish clear protocols for detecting, reporting, and resolving ICT-related incidents in line with regulatory expectations.
• Cyber Resilience Testing: Threat-Led Penetration Testing (TLPT) and other advanced simulations are required to evaluate resilience against high-risk attacks.
• Third-Party Risk Management: Ensures critical ICT providers align with stringent resilience and compliance standards.

For an in-depth exploration, read the full article on the Digital Operational Resilience Act.

How to comply with DORA 

As the most comprehensive cybersecurity framework for Web3, DORA is a critical requirement for crypto entities striving to ensure compliance and build trust in an increasingly regulated landscape. Hacken, Europe’s leading crypto auditor, is uniquely positioned to assist Web3 projects in achieving full DORA compliance. With over seven years of experience in securing all facets of Web3 infrastructure, a strong presence within the EU, and close collaboration with regulators through the European Blockchain Sandbox, Hacken provides unparalleled expertise to help projects navigate and excel within the evolving regulatory environment.

Cryptocurrency Regulations In Asia

Japan: Legal Status and Oversight

Japan has embraced Web3 as a key economic pillar, supported by initiatives like the Digital Agency and Web3 Advancement Initiative. Digital assets are regulated under the Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA), which govern crypto assets, stablecoins, and security tokens.

A standout feature of Japan’s approach is its self-regulatory status, granted in 2018. The Japan Virtual Currency Exchange Association (JVCEA), under the oversight of the Financial Services Agency (FSA), is empowered to police and penalize cryptocurrency exchanges, fostering accountability and trust.

Exchanges must register with the FSA, comply with AML/KYC standards, and enforce the FATF’s Travel Rule from 2024. Stablecoins are restricted to issuance by banks, trust companies, and money transmitters. Providers must secure customer funds in cold wallets and maintain reserves equal to customer holdings.

Japan’s regulatory framework balances innovation and consumer protection, leveraging self-regulation to build a robust and transparent crypto ecosystem.

South Korea: Virtual Asset Users Protection Act

South Korea’s Virtual Asset Users Protection Act enforces stricter AML and Know Your Customer (KYC) requirements for cryptocurrency exchanges. The act mandates that exchanges must partner with local banks to offer real-name accounts, ensuring transparency and minimizing financial crime risks. Recent measures also include mandatory insurance policies for exchanges to protect investors against potential cyberattacks or operational failures. This regulatory approach underscores South Korea’s focus on consumer safety in the rapidly evolving crypto market.

China: Strict Ban on Crypto Activities

Crypto assets are banned in China. China maintains a stringent stance on cryptocurrency, imposing comprehensive bans on exchanges, trading, and mining activities. The government views cryptocurrencies as a threat to financial stability and has prioritized the development of its Central Bank Digital Currency (CBDC), the digital yuan, as a state-controlled alternative.

India: Transition to Regulatory Frameworks

India has transitioned from banning cryptocurrencies to proposing regulatory frameworks aimed at balancing innovation and control. The Reserve Bank of India (RBI) now mandates strict AML/CFT compliance under the Prevention of Money Laundering Act (PMLA), emphasizing due diligence and transaction monitoring. Additionally, Virtual Asset Service Providers (VASPs) must retain financial and KYC records for at least five years to mitigate cybersecurity risks.

A taxation regime for crypto transactions was introduced, alongside the exploration of a Central Bank Digital Currency (CBDC), with pilot projects underway for wholesale and retail applications. Despite the lack of an overarching framework, the focus remains on curbing financial crime, safeguarding consumer interests, and fostering cross-sector regulatory coordination through initiatives like the Interoperable Regulatory Sandbox (IoRS).

Singapore: Licensing Under the Payment Services Act

Singapore adopts a risk-based regulatory approach, balancing innovation with consumer protection. The Monetary Authority of Singapore (MAS) requires digital payment token service providers (DPTSPs) to obtain licenses under the Payment Services Act (PSA) and mandates strict AML/CFT compliance. MAS regulations emphasize safeguarding less sophisticated retail investors, requiring measures such as customer risk awareness assessments, asset segregation, and risk management controls. Advertising DPT services in public areas is also restricted to minimize speculative activities.

MAS extends its regulatory framework to stablecoins, proposing a specific regime for single-currency pegged stablecoins with circulation exceeding SGD 5 million. These rules aim to ensure value stability and transparency. Moreover, MAS has piloted initiatives like Project Guardian to explore asset tokenization and DeFi applications, showcasing its commitment to fostering innovation while maintaining market integrity.

Singapore is also advancing its position in Central Bank Digital Currency (CBDC) development. Through initiatives like Project Dunbar and Ubin+, MAS collaborates with international partners to explore cross-border settlement solutions using wholesale CBDCs. While retail CBDCs are not a current priority, MAS continues to prepare for their future implementation under Project Orchid, ensuring the necessary infrastructure is in place.

Cryptocurrency Regulations in the UAE

ADGM: Comprehensive Framework in Abu Dhabi

Under the guidance of the Financial Services Regulatory Authority (FSRA), The Abu Dhabi Global Market (ADGM) offers one of the most comprehensive regulatory frameworks for crypto businesses. It includes the Distributed Ledger Technology Foundations Regulations and the Financial Services Permission (FSP) license. ADGM mandates due diligence on projects, robust AML/CFT compliance, and regular security audits, including proof-of-reserves audits and penetration testing. The ADGM compliance dashboard and Extractor monitoring ensure ongoing supervision, appealing to businesses seeking clear regulatory guidelines in a stable environment.

VARA: Dubai’s Virtual Assets Regulatory Authority

Dubai’s Virtual Assets Regulatory Authority (VARA) has established a robust framework to position Dubai as a global crypto hub. VARA regulations cover virtual asset issuance, trading, custody, and investor protection, aligning with global AML/CFT standards. VASPs operating in Dubai must implement cybersecurity policies with access controls, system operations protocols, and incident response measures. VARA also mandates proof-of-reserves audits every six months, ensuring trust and transparency within the ecosystem.

Other Notable Regions

Canada

Canada enforces AML/CFT compliance for cryptocurrency platforms under its Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Exchanges must register as Money Services Businesses (MSBs) and implement KYC and transaction monitoring measures.

Australia

Australia regulates cryptocurrencies through its Australian Transaction Reports and Analysis Centre (AUSTRAC). The regulatory framework requires crypto businesses to register, comply with AML/CFT obligations, and maintain detailed transaction records to ensure transparency.

Brazil

Brazil recently passed legislation to recognize cryptocurrencies as a payment method. The Central Bank of Brazil oversees the crypto market, emphasizing AML compliance and financial stability while fostering innovation in digital payment solutions.

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Who Needs To Apply To Crypto Regulations 

• Crypto exchanges and trading venues
• Wallet infrastructure services
• Staking-as-a-Service providers
• Blockchain analytics firms
• Crypto-asset service providers (CASPs)
• Peer-to-peer trading platforms
• KYC and AML compliance service providers
• Cloud service providers supporting crypto ecosystems

Why Compliance Matters

• Ensures industry stability and long-term growth
• Prevents regulatory fines and penalties
• Strengthens operational resilience
• Builds confidence among users and investors

Next Steps For Companies

• Conduct comprehensive due diligence on regulatory obligations and crypto markets
• Implement governance structures to address conflicts of interest
• Enhance operational transparency with trade and custody disclosures
• Strengthen systems for detecting and preventing market abuse
• Establish robust market surveillance systems for on-chain and off-chain activity
• Use independent audits to reconcile and ensure the safety of client assets
• Develop systems to manage material non-public information
• Foster cross-border regulatory collaboration for compliance and enforcement
• Request tailored services like DORA compliance and AML monitoring

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Conclusion: Regulation Has Finally Come to Web3

The era of regulatory ambiguity in Web3 is nearing its end as jurisdictions worldwide adopt frameworks to govern the crypto ecosystem. While approaches vary significantly—ranging from the EU’s robust MiCA and DORA to UAE’s ADGM—the industry is now undeniably under scrutiny. Despite these regional differences, one aspect remains universal: AML/CFT guidelines.

AML/CFT compliance, reinforced by global standards like FATF’s Travel Rule, underscores the shared commitment to preventing financial crimes and enhancing transparency. As Web3 matures, this universal standard demonstrates that while innovation thrives, it must do so responsibly, with security and trust at the forefront.