This is a fast-moving world of Web3 and Virtual Asset Service Providers (VASPs). The involvement of law enforcement agencies (LEAs) is increasingly shaping the startup arena. The agencies are responsible for enforcing regulations, upholding market integrity and also shielding consumers from fraud.
LEAs have a duty to ensure compliance with anti-money laundering (AML) regulations, combat terrorism financing and monitor customer due diligence practices. Startups adhering to the regulations are mandatory and also essential for maintaining market trust as well as avoiding harmful disruptions. The regulatory efforts often come at a high cost.
Compliance is vital but the sheer weight of it can overwhelm emerging businesses. Startups routinely find themselves in a bind where time and resources invested in meeting regulatory demands detract from their ability to innovate and expand. Prolonged investigations and complex compliance processes can make obtaining funding and partnerships an uphill battle for VASPs and Web3 startups. When law enforcement becomes a major obstacle, the entire innovation ecosystem is at risk.
LEAs must adopt a risk-based as well as proportionate framework. It should be one that holds high-risk entities accountable while giving compliant startups the room required to grow. Simplifying compliance, clarifying regulations and adopting standard operating procedures (SOPs) can ease the strain.
Government support can also make a meaningful difference. Regulatory sandboxes allow startups to test compliance in a controlled setting where both LEAs and founders can work together.
Success of the ecosystem depends on a collaborative relationship. When LEAs view startups as allies in achieving compliance goals, it builds a foundation of mutual trust. It is time for LEAs to recognize that startups are not adversaries but partners in their mission to secure market integrity.
