Before the crazy rush in cryptocurrency markets that saw Bitcoin (BTC) surpass its highest ever price to set new all-time highs, $23,800, as at the time of writing, a popular theme was cropping up in the space – security compliance. Across the year, several cryptocurrency exchanges around the world such as BitMEX have been targeted by financial regulators due to poor regulatory compliance and security issues.
The ugly side of KYC/AML compliance
At the beginning of October, BitMEX, a crypto asset trading platform, was sued by the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission (CFTC) for violating the Bank Secrecy Act. Shortly after confirming all users’ funds are safe on the exchange, a huge outflow of Bitcoins followed in the next fortnight with 46,200 BTC and 10,600 BTC withdrawn from the exchange on October 2 and October 7 respectively.
After a long dragging saga, several senior executives of BitMEX including its CEO, Arthur Hayes were suspended and cordially dismissed from their roles on the exchange. As one of the largest Bitcoin perpetual swaps, users, regulators, and authorities across the world are ever-more keenly looking at crypto exchanges and their adherence to security and regulatory compliance.
Whether in the United States, Japan, United Kingdom, or other major crypto-asset markets, the consistency of regulatory authorities lies in strict compliance with KYC requirements and avoiding the provision of illegal money laundering and terrorist financing channels.
A new way to look at compliance
Technology and innovation will always move faster than the laws in place hence the need for harmonization. Cryptocurrency service providers are always innovating new ways to create a trading market in a compliance-friendly way in a bid to keep themselves within the regulators’ yardstick and allow a wider market to trade and use cryptocurrencies.
For instance, MXC Exchange, one of the top 10 futures trading exchange on Coingecko rankings, is known for its strict compliance adherence to global KYC//AML regulations to give a smooth and seamless experience to their users.
“Compliance and Security is the key to having a stable and functioning cryptocurrency exchange. The biggest test facing the crypto asset market in 2020 is not the market test but how to carry out the operation of security compliance around the world,” Alex Zha, Director of Global Operations at MXC exchange.
Launched in 2018, MXC has obtained a number of licenses including the Estonian MTR license, US Money Service Business license, Australian compliance license, Canadian MSB license, and Swiss compliance license. Obtaining local licenses to conduct compliance o crypto-asset operations on its platform has allowed a wider market base for MXC Exchange in these countries.
With a number of regulators breathing down MXC Exchange necks, users feel safe trading on the platform, with close to $1 billion in volumes traded daily.
Two peas in a pod: Security and Compliance
It is very hard to have a competent cryptocurrency exchange if either compliance or security is failing. This has been a major problem in the raging decentralized finance (DeFi) world, where despite decentralized exchanges (DEX) circumnavigating the compliance hurdle, security has failed applications time and again.
Centralized exchanges have not performed any better with billions of dollars’ worth of cryptocurrency stolen in hacks across exchanges. However, some exchanges such as Coinbase, Gate.io, and MXC Exchange have taken extra steps to ensure maximum security protocols on their platforms. The latter has includes five-man security protection companies to secure users’ assets – KnownSec, SlowMist Technology, Palmim Technology, Beosin, and Chainsguard.
To date, MXC Exchange is yet to lose a single coin in a security hack on their platform. Such impressive security track records have set the exchange high on Coingecko’s Cybersecurity Score rankings with an overall score of 9.5. This sets it higher in security than well-known exchanges such as Binance, Huobi, Gemini, and Coinbase Pro.
To enhance their compliance, security and services to their clients, MXC Exchange also announced a partnership with BlockRating, a firm that specializes on rating digital assets, teams, projects and exchanges. The partnership aims to increase transparency in the crypto ecosystem, an announcement reads.
Apart from having strong security protocols, cryptocurrency service providers are also required to carry out consistent code audits to sniff out any bugs or issues. Security audits improve a platform’s compliance and overall security. CertiK, a smart contract audit firm has seen its stakes rise with the increase in demand for third party audit services across DeFi products in 2020.
MXC Exchange took its chances with “Copper Leakage Bonus” in SlowMist Zone, a third-party security company as its audit partner. The company specializes in threat intelligence and crypto theft security ensuring that the exchange is safely operating at all times.
Compliance and security are the cornerstones of any good exchange symbolized by the insane growth of MXC Exchange. High compliance standards to KYC/AML requirements is key to avoid cases of money laundering and breaking the Bank Secrecy Act on an exchange. Additionally, cryptocurrency exchanges have a better chance of expanding to other local markets in multiple nations if they follow high compliance and security standards.