Cryptocurrencies, cash and AML: How are new technologies shaping financial markets?

The rapid growth of the cryptocurrency market is one of the most dynamic phenomena in modern finance. With advances in technology, the popularity of digital assets and the demand for services that facilitate seamless conversion between cryptocurrencies and traditional payment methods has increased significantly.

Technological advances in the sector are changing financial paradigms, offering new opportunities while also posing significant challenges for businesses and regulators. The exchange of cryptocurrencies for traditional forms of payment has become a key area of innovation, attracting the attention of both investors and regulators. Cryptocurrency exchange offices have sprung up, allowing users to convert digital assets into cash that can be collected at designated points. While this solution is very attractive to users, it comes with certain legal requirements, especially in the context of anti-money laundering (AML) regulations.

How does this exchange model work? 

The service works based on a simple mechanism: the user transfers cryptocurrency to the exchange’s wallet, and in return receives cash, which can be picked up at a designated location. Sounds simple, right? But from a legal and regulatory perspective, the process presents a maze of challenges, requiring effective risk management and the implementation of stringent compliance procedures.

Legal framework – what does the MiCA say? 

The EU Markets for Cryptocurrency Assets Regulation (MiCA) establishes a legal framework for cryptocurrency-related activities, including exchanges. The MiCA aims to increase protection for users and ensure transparency in the operations of traders. Cryptocurrency exchanges, as exchange service providers, fall under the Crypto-Asset Service Providers (CASPs) classification and are subject to several key obligations:

1. Registration and licensing – CASPs must (as a rule) be authorized and meet operational transparency requirements;

1. AML obligations – CASPs are required to implement financial security measures, including identifying and verifying the identities of customers and beneficial owners, determining customer ownership structures, and assessing transaction and customer risks;
2. Reporting suspicious activities – Questionable transactions must be reported to the relevant authorities.

Doing Due Diligence: The Basis for Trust and Compliance

Operating effectively in such a dynamic and highly regulated industry as cryptocurrency exchanges requires the implementation of advanced due diligence procedures. Verifying customer identities and ownership structures, conducting risk analysis and using state-of-the-art monitoring systems are essential elements of operational compliance. For example, ongoing analysis of customer behavior makes it possible to detect abnormal transaction patterns, such as repeated deposits from a single IP address to multiple wallets, facilitating rapid response and minimizing the risk of money laundering.

Opportunities and Challenges: Regulation as key to stability

While the regulatory framework imposes significant obligations on cryptocurrency players, it also creates opportunities to build trust among users. Transparency and compliance with regulatory requirements empower the market, potentially attracting even more traditional financial users to cryptocurrency services.

Polish Economic Institute statistics and the role of MiCA regulation

According to the Polish Economic Institute (PIE) 2023 report:

– 94% of Poles have heard of cryptocurrencies,

– 11.7% of adult Poles own cryptocurrencies,

– The median investment in cryptocurrencies in Poland is 1000 PLN.

However, 20% of cryptocurrency holders in Poland have fallen victim to fraud. Importantly, 34% of the population believes that cryptocurrencies are mainly used for fraud, money laundering and drug trafficking.

Below the chart.

The above data shows that fear and distrust of the cryptocurrency market remains high. Regulatory frameworks such as MiCA and AML regulations have the potential to change this perception, contributing to a greater sense of security and trust in cryptocurrencies as an integral part of the modern digital economy.

Conclusions

The transformation of financial markets in the digital age requires balancing technological innovation with strict regulatory requirements. The ever-emerging cryptocurrency exchanges in Poland show that it is possible to successfully and sustainably integrate the two. In the long run, the success of such companies will depend on their ability to flexibly adapt to changing regulations and customer expectations, as users increasingly value professionalism and transaction security.

The key question remains: Will regulation keep up with innovation? The answer to this question may define the future of the entire cryptocurrency market.

Authors:

Dominika Bielecka – Partner, Legal Advisor, Approved Expert in the field of cryptocurrency.

Zuzanna Bierut – Legal Assistant.