In a groundbreaking development, the year 2023 witnessed cryptocurrency and fintech companies being penalized more for lax controls than their traditional financial counterparts. Global regulatory bodies intensified their crackdown on illicit financial activities in the evolving landscape of finance.
According to data analyzed by the Financial Times, crypto and digital payments firms incurred fines totaling $5.8 billion last year for deficiencies in customer checks, anti-money laundering controls, and lapses in adhering to sanctions and other financial crime protocols. Notably, this amount far surpassed the $835 million paid by traditional financial services groups, marking the lowest figure in the last decade.
Dennis Kelleher, CEO of Better Markets, a Washington-based advocacy group for tighter regulation, emphasized that these figures highlight issues in the newer realms of finance rather than showcasing an improvement in the practices of traditional banks. He described the situation as a response to the widespread fraud and criminal activities in the high-profile crypto sector, prompting regulators and prosecutors to allocate resources to curb such conduct.
The data, compiled by compliance software provider Fenergo, revealed that fines for money laundering and financial crime violations increased by over 30% to reach $6.6 billion, although still below the peak of $11.3 billion in 2015.
The number of fines against crypto and payments providers saw a significant surge in 2023. Crypto firms faced 11 fines, a stark contrast to an average of fewer than two per year in the previous five years. Similarly, payments firms encountered 27 fines compared to their average of about five annually from 2018 to 2022. Notably, the majority of the payments groups fined were less than 20 years old.
David Lewis, former head of the Financial Action Task Force, expressed concern about the lack of global regulatory standards for crypto firms in most jurisdictions, anticipating further fines in this area. He emphasized the need for proper oversight and regulation as the risks associated with cryptocurrencies continue to rise, providing opportunities for criminals to exploit loopholes.
Experts predict that fines against crypto and payments groups could rise even further in the coming years as governments introduce new regulatory frameworks. The UK’s Financial Conduct Authority has already highlighted the “unacceptable” risks posed by the sector.
Despite expectations of increasing fines, some experts, like Charles Kerrigan from law firm CMS, believe that fines against crypto may decrease as the industry has become more tightly controlled over time. However, he acknowledged that regulators might still impose fines to emphasize points about the crypto industry.
In conclusion, the data from 2023 suggests a significant shift in regulatory focus, with crypto and fintech companies facing higher penalties for lax controls compared to traditional financial institutions. As the financial landscape continues to evolve, increased regulatory scrutiny is expected to shape the conduct of both established and emerging players in the industry.
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