Why You Should Care About The Regulation Of Crypto Exchanges
What would you do if you attempted to get into your bank account and found that your cash had been blocked? This situation is the biggest nightmare for many people.
Unfortunately, a lot of cryptocurrency users have reported very similar experiences.
Several significant cryptocurrency exchanges have gone bankrupt in recent years, resulting in consumers losing their funds. To stop a collapse, other businesses were compelled to freeze user funds. What began as a few singular events have developed into a troubling pattern.
Government rules, or lack thereof, have frequently been a factor in this. Many exchanges have operated under hazardous models because they were primarily unregulated, which has caused severe liquidity issues. On the other hand, several businesses have been forced to shut down or halt operations due to a financial regulator’s determination that they were not working under governmental regulations in one of the jurisdictions in which they were situated.
Fortunately, several cryptocurrency exchanges actively endeavor to collaborate with authorities and apply moderate risk and liquidity management strategies. Gate.io is one of these exchanges. Gate.io Group, one of the biggest cryptocurrency exchanges with more than 12 million members worldwide, established its image by pursuing a pro-regulatory policy that included gaining licenses in Hong Kong, Malta, Dubai, and Lithuania during the previous year.
There are five things that cryptocurrency customers should be aware of regarding exchange regulation, according to its EVP, Tom Yang.
From a regulator’s point of view, why is regulation necessary?
“The days when financial regulators let the cryptocurrency space manage itself are long gone,” claims Tom. They know how criminal organizations have exploited cryptocurrency to fund illicit activities and transfer criminal proceeds across international borders. Additionally, because of the enormous financial magnitude of crypto institutions, any error or carelessness on their part might result in losses of tens of billions of dollars, which would be catastrophic for both the general public and the economy as a whole. Therefore, the justifications regulators give for regulating cryptocurrency are essentially the same as those they provide for regulating conventional banks.
Why is receiving regulatory permission crucial for exchanges?
Sustainability, in a nutshell, says Tom.
“An exchange operating in violation of the law is not doing so sustainably since the regulator could shut it down at any time or take other action against it. The most reliable exchanges invest resources into establishing infrastructure, most notably a compliance team based in the jurisdiction, enabling them to keep up with changing legislation and obtaining a license to operate. We at Gate.io have strictly followed these instructions.
Why should investors and users be concerned with an exchange’s regulatory compliance?
“An exchange is proving to the world that it has taken the ultimate step in keeping its users’ funds safe and protecting them from financial wrongdoing,” says Tom. “It complies with government rules designed to assure solvency and sound financial management.
“Users are placing their money with an institution they can trust to be solvent if they give compliance status more weight than just promised profits when choosing their exchanges.
Furthermore, by selecting a regulated exchange, consumers gain access to a more general but no less significant degree of consumer protection because financial regulations include critical topics that are not just financial, such as the protection of personal data.
What does a crypto exchange that truly embraces regulatory compliance look like?
Tom says, “At Gate.io, we strive for regulatory approval in every jurisdiction where we provide services. Regulators in Lithuania, Malta, Dubai, and Hong Kong have granted us operating licenses. We have extensively invested in establishing teams to collaborate with the local authorities in jurisdictions where the regulatory environment is still being established, and enterprises use a guiding framework, such as Turkey, Brazil, and Vietnam. The company won’t declare that it does business in a region until a local team has been established and local laws have been met.
Investors should confirm that the exchange they intend to use has such safeguards since if not, it is likely to conduct business in a riskier manner.
Where can I discover a compliant exchange where I can trade?
Here, Tom offers some recommendations for cryptocurrency consumers.
He advises, “The first is to examine the regulatory framework for cryptocurrencies in your country, namely whether or not crypto exchanges are subject to local rules.” If so, trade on exchanges that have received regulatory clearance, paying more attention to the regulator’s remarks about approved sales than the exchanges’ claims.
“If you reside in a country or region that does not regulate cryptocurrency trading, find out which active exchanges have a local office. This is significant, among other things, because deals with a local presence are probably best positioned to request regulatory permission when a regime is about to take effect. Jurisdictions are generally moving to establish regulatory rules.
“Just because an exchange operates in a regulated market doesn’t mean using it is secure. Users should investigate the other crucial elements that guarantee the proper operation of a conversation to comprehend potential dependability and risk issues. The assurances of trade protections, cybersecurity best practices, evidence of reserves, and asset liability protections should all be evaluated across exchanges. Users will have additional guarantees that their assets won’t be made vulnerable by poor exchange administration thanks to the policies that reliable sales like Gate.io will have in place for each of these areas. For instance, Gate.io provides 100% proof of reserves for all cryptocurrencies exchanged there.