With the collapse of FTX and Alameda so shut on the heels of Celsius, one factor is evident – the regulatory and enforcement storm so many anticipated coming to crypto is now right here. Sadly, no matter what the details surrounding FTX and Alameda finally grow to be, incidents like this serve to strengthen the biases of enforcement companies towards all crypto corporations, no matter their building, design, operation, or management. For some prosecutors and investigators, this incident will likely be seen as validation of the view that every part and everybody within the crypto house is soiled, or a rip-off (or each).
That’s not true, and it’s not honest, however it’s the truth crypto corporations are going through. And these results will linger lengthy after the autumn of FTX is a reminiscence.
Even in the perfect of occasions, it’s arduous to get enforcement companies to not paint all crypto corporations with the identical brush. These aren’t the perfect of occasions – and all it takes is one or two high-profile incidents to undo years of progress, and we’ve now had greater than that simply prior to now few months.
So what ought to crypto corporations be doing now, with these storm clouds clearly on the horizon?
First, line up counsel now, so you are ready for the day when subpoenas arrive and brokers begin knocking on doorways to interview your folks. Selections made within the preliminary moments of an investigation can have far-reaching penalties, so it’s vital to assume by means of these situations and points upfront.
Second, that is the time for a “wellness test” of kinds – a assessment of the areas of your corporation which are most definitely to attract curiosity from DOJ and different companies. AML/KYC. Sanctions. Disclosures to prospects or counterparties. Lending preparations. Preparations amongst corporations with shared or overlapping possession. All of those ought to be scrutinized by your organization now, as a result of companies will scrutinize them later. And to be most helpful, this sort of assessment ought to be completed by a distinct agency than the one which helped design your techniques or drafted your insurance policies. In these circumstances, a recent set of eyes is healthier, and extra credible with the federal government, than having a agency test its personal work. This doesn’t imply displacing that agency – it means ensuring you could have lined your entire bases. Doing this sort of assessment gained’t forestall an organization from being focused, simply as storm shutters can’t forestall a hurricane. However it should improve the possibilities that the corporate can mitigate the ache related to any such investigation and put the corporate in a stronger place to get by means of it efficiently.
Exchanges and different VASPs, decentralized exchanges and decentralized finance platforms, and others within the digital asset house can be smart to arrange now – the calm earlier than the storm is over, and the storm will likely be with us for fairly a while.