Crypto Regulation is Struggling to Keep Pace with Rapid Adoption

Crypto Regulation

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Crypto Loopholes Criminals Exploit While Regulators Play Catch-Up

Just this month, the UK’s Financial Conduct Authority accelerated crypto approvals to address criticisms of slow licensing and acknowledgment that regulation must catch up to the pace of innovation. At the same time, crypto adoption is rising fast: around 562 million people now own crypto globally, up 33% from 2023. The combination of rapid adoption and inconsistent oversight gives cybercriminals fertile ground to exploit.

In his conversation with Coinpedia, Baek stressed the urgency of this gap. “Cybercriminals are efficient, fast, and innovative, moving at lightning speed, whereas regulatory bodies are often playing catch-up,” he said.

The Weak Points Criminals Use

Baek pointed to jurisdictional arbitrage as one of the biggest problems in light-touch regions where exchanges and OTC brokers operate with little oversight.

Attackers also exploit peer-to-peer markets, forged e-KYC documents, and mule accounts to cash out funds. Decentralized finance (DeFi) adds another challenge, with some platforms presenting themselves as “just software” to avoid being classified as financial intermediaries.

Regulators Fight Back

There are positive signs. Nearly 100 countries are adopting the FATF Travel Rule, which requires exchanges to collect and share identity data. Europe’s MiCA framework, which took effect in late 2024, now enforces unified rules across the EU.

Singapore, Hong Kong, and the UAE have all tightened licensing regimes for exchanges. Stablecoins, too, are under stricter rules requiring reserve backing and real-time audits.

Still, global alignment remains incomplete. Offshore jurisdictions and cross-border enforcement leave cracks for hackers to exploit.

But Baek is cautiously optimistic, “The combination of global standards, licensing regimes, and sandbox programs represents a meaningful step toward closing the gaps criminals have relied on for years.”