Intense industry hype and alarming cryptocurrency volatility have led regulators the world over to perk up their ears to the growing number of cryptocurrency exchanges At first glance it appears as if the watchdogs are coming down hard on the industry in response to anxieties over the risk of illicit and criminal activity as well as a lack of investor protection These concerns are legitimate too Earlier this year Hong Kong-based Binance warned of a malfunction in its API possibly leading customers to fall for phishing attacks Regulators in Japan halted trading at two crypto exchanges Bit Station and FSHO Another Japanese cryptocurrency exchange Coincheck suffered a hack that led to 530 million in cryptocurrency being stolen with not all of it being reimbursed to customers Earlier this month reports surfaced that blockchain heavyweight Ripple was hitting roadblocks in its effort to list its cryptocurrency XRP on exchanges despite reportedly offering top exchanges Coinbase and Gemini a financial incentive to allow the listing According to analysts the exchanges are concerned that XRP may be considered an unregistered security as it is controlled by a single company These are just a few of the scenarios that suggest regulators are taking a tough stance on exchanges whether via high-profile suspension or closure of exchanges or registration requirements Despite appearances though Aaron Travis COO of Vaultbank says regulators are not an enemy to the digital asset market People think regulators are scared but I dont think thats actually the case Travis recently told PYMNTS They realize there is going to be a new world order with blockchain and how capital flows globally and theyre trying to figure out exactly what these digital assets are is it a currency A property A commodity And then of course as is getting a lot of attention and where were focused the question of whether it is a security Vaultbank announced 3 million in funding via token sale this week as it prepares to launch Vaultbank Exchange currently running in beta later this year Nearly half of that investment the company said has been allocated to its Vaultbank Fund which will provide assets to back each VB token The companys business model as a cryptocurrency exchange operator means the company takes the position that some digital assets are securities Thats a key distinction for its relationship with regulators including in the US where the Securities and Exchange Commission SEC announced last month that because these exchanges offer a way to trade assets that meet the legal criteria of a security they must be registered with the SEC According to the regulator and as echoed by Travis the purpose of this oversight is to protect investors Thats a good thing Travis noted despite a perception in todays market that regulators may be working against these cryptocurrency exchanges Our strategy is to be open and transparent with regulators he explained We would like to be considered a resource to try to figure out what the regulatory framework is going to be Vaultbank is collaborating with Gordian Compliance Solutions to ensure that its exchange remains compliant with Know Your Customer KYC anti-money laundering AML and other regulations designed to combat illegal financial activity Focusing on security and compliance of its platform and offering to work with not against regulators is reminiscent of the rise of another disruptive industry in the financial services space alternative finance Theres been a similar experience in the marketplace lending space Travis said Originators and participants that allowed for regulators to come in and have a good look at what they were doing and how they were acting with investors really worked To ensure investor protection in this area he continued exchanges and regulators will have to work together The COO added that companies like Vaultbank also have to ensure investors are well-educated Those that arent he said should perhaps step away from the industry If youre on an exchange or buying digital assets in which the originator or person selling them to you has not gone through great efforts to get to know you and has not undergone KYC and AML checks then I would be wary of it he cautioned If the platform youre buying a digital currency from is not going through those hoops those standard basic efforts to protect the investor you need to be wary of that These regulators arent just for the protection of investors theyre for the protection of the exchanges themselves too John Nahas Vaultbanks head of investor relations added that the company actually had to turn away investors not willing to endure background checks and other security requirements We had to turn away a lot of people who werent willing to do KYC provide their information so we can clear who they are Nahas said Were trying to devise and bring the necessary steps that exist in any other financial market to this one Thats the direction in which the cryptocurrency and digital asset is going toward Youre protecting the investor and protecting yourself and in doing so youre protecting this new and emerging market You Might Also Like AML B2B B2B Payments Binance bitcoin Blockchain cryptocurrency KYC News regulation Vaultbank