What we learned from crypto regulation
Currently, DeFi is unregulated, but as we addressed before, the financial authorities are gearing up to regulate DeFi. Here is what we can learn from the crypto asset regulations.
Critical components of crypto-assets regulation:
KYC/AML – Know Your Customer/Anti Money Laundering
Know Your Customer (KYC) and Anti Money Laundering (AML) laws require financial institutions to verify the identity of customers before allowing them access to services. These laws were put into place to prevent money laundering and terrorist financing.
Anonymous trading refers to the ability to trade without providing personal identification. This type of trading is common among peer-to-peer marketplaces. While peer-to-peer transactions most likely will not be regulated, the on and off-ramp from fiat currency to crypto and vice versa are already regulated. Regulated CASPs are not permitted to receive or send crypto to anonymous wallets.
The trend is clear. All national or regional financial regulators align with the FATF recommontation that specifically addresses DeFi.
Securities law (or Capital Markets law)
Securities are financial investment in which a corporation or organization offers security to raise capital for its business. The regulation on securities is an independent set of regulations implemented per country or region. Depending on the protocol (smart contract) the service could be considered a security and, therefore, should comply with capital markets laws.
In the European Union, the issuer must conduct a legal analysis of whether these tokens have the characteristics of financial instruments within the meaning of MiFID II In the US, a common way to determine if an asset would classify as a security is to conduct the Howey test.
Read more: The advantages of digital securities.
Future of DeFi
DeFi offers greater transparency, and efficiency than traditional banking systems because it allows investors to interact with financial protocol directly without going through intermediaries.
We expect that DeFi will become an integral part of our financial system. It will provide new ways to invest, borrow, and insure. We also expect that DeFi will continue to evolve as new technologies emerge.
Appropriate regulation and supervision ultimately increase trust in these solutions and support their distribution.
How NEXUS can help you comply with regulation
Regulated DeFi requires due diligence for issuers and investors. Our solution NEXUS can help issuers comply with the upcoming regulation. Furthermore, we are ISO 27001 certified and ISAE 3402 compliant, these certifications are internationally recognized as an essential standard for companies in the financial sector.
KYC/KYB and Onboarding
Integrate KYC/KYB and onboarding solutions for customer-friendly onboarding. Only onboarded customers and businesses are authorized to use the services offered by the user.
AML and Fraud Prevention
NEXUS offers comprehensive customer compliance and risk management tools. The system generates compliance reports accepted by an AA- (Fitch rating) bank. Additionally, all transactions are fully traceable and auditable.
It is possible to limit investors’ access depending on the token classification and regulation in specific countries or regions.
NEXUS also provides an additional compliance security measure called Trust levels. These limits the amounts investors can buy or sell per day, month, or year, allowing for specific constraints for each trust level.