Hidden Road, a brokerage firm backed by Citadel, has officially stopped providing access to the ByBit exchange for its clients. The clients were informed of this change weeks in advance. Bloomberg reports that the restriction on services is a result of disagreements between Hidden Road and ByBit regarding the verification procedures for Know Your Customer (KYC) and the Anti-Money Laundering (AML) regulations.
In response to this, ByBit has stated that it will conduct an audit of its brokerage business to ensure that regulatory policies are being correctly implemented.
KYC verification and AML regulations have become contentious issues in the decentralized finance community. However, research published in the academic journal Policy Design and Practice has shown that AML regulations have had a minimal impact on illicit financial activities. The research also reveals that the total global proceeds from criminal activity accounted for only 3.6% of total GDP in 2018, and this percentage remained consistent in previous years surveyed.
To circumvent these regulations, several projects, including Tornado Cash, Samurai Wallet, and the privacy coin Monero, have offered crypto mixer and tumbler services to users. However, some of these projects have faced legal consequences. In April, the developers of Samurai Wallet, Keonne Rodriguez and William Lonergan Hill, were arrested by U.S. federal authorities for allegedly violating money laundering laws. Similarly, the founders of Tornado Cash were charged and arrested for facilitating money laundering.
Alexey Pertsev, one of the developers of Tornado Cash, was arrested and tried by Dutch authorities and is currently serving a 64-month prison sentence for his involvement in the project.