The Storm Is Here – Fin Tech

With the collapse of FTX and Alameda so close on the heels of
Celsius, one thing is clear – the regulatory and enforcement
storm so many anticipated coming to crypto is now here.
Unfortunately, regardless of what the facts surrounding FTX and
Alameda ultimately turn out to be, incidents like this serve to
reinforce the biases of enforcement agencies against all crypto
companies, regardless of their construction, design, operation, or
leadership. For some prosecutors and investigators, this incident
will be seen as validation of the view that everything and everyone
in the crypto space is dirty, or a scam (or both).

That’s not true, and it’s not fair, but it’s the
reality crypto companies are facing. And these effects will linger
long after the fall of FTX is a memory.

Even in the best of times, it’s hard to get enforcement
agencies not to paint all crypto companies with the same brush.
These are not the best of times – and all it takes is one or
two high-profile incidents to undo years of progress, and we’ve
now had more than that just in the past few months.

So what should crypto companies be doing now, with these storm
clouds clearly on the horizon?

First, line up counsel now, so you are prepared for the day when
subpoenas arrive and agents start knocking on doors to interview
your people. Decisions made in the initial moments of an
investigation can have far-reaching consequences, so it’s
important to think through those scenarios and issues in
advance.

Second, this is the time for a “wellness check” of
sorts – a review of the areas of your business that are most
likely to draw interest from DOJ and other agencies. AML/KYC.
Sanctions. Disclosures to customers or counterparties. Lending
arrangements. Arrangements among companies with shared or
overlapping ownership. All of these should be scrutinized by your
company now, because agencies will scrutinize them later. And to be
most useful, this type of review should be done by a different firm
than the one that helped design your systems or drafted your
policies. In these circumstances, a fresh set of eyes is better,
and more credible with the government, than having a firm check its
own work. This doesn’t mean displacing that firm – it
means making sure you have covered all of your bases. Doing this
type of review won’t prevent a company from being targeted,
just as storm shutters can’t prevent a hurricane. But it will
increase the chances that the company can mitigate the pain
associated with any such investigation and put the company in a
stronger position to get through it successfully.

Exchanges and other VASPs, decentralized exchanges and
decentralized finance platforms, and others in the digital asset
space would be wise to prepare now – the calm before the
storm is over, and the storm will be with us for quite some
time.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.