Crypto Exchange Regulation 2025: Licenses and Compliance Guide

Crypto exchange regulations took shape in 2025 after years of uncertainty and a “lawmaking through enforcement” approach by authorities.

In most jurisdictions, retail and institutional adoption was a major driver, while others cited the need to protect investors against growing losses.

This prompted new legislation, accelerated the enforcement of existing laws, and brought markets closer to traditional finance.

Currently, crypto exchanges and their promoters are required to obtain regulatory approval for licenses and financial disclosures.

This article looks into how much the regulatory space has evolved, recent developments in the United States, European Union, and emerging markets, what’s in for traders, and future trends.

The State of Global Regulation in 2025

The US Pivot: From “Enforcement” to “Framework”

Globally, crypto regulations witnessed major headline shifts in the past year. In the United States, authorities moved from a regulation-by-enforcement to a clarity and stakeholder approach. President Trump’s first term and the Biden administration were riddled with fears, uncertain rules, and developers either threatened to or downright fled to friendlier jurisdictions.

The Securities and Exchange Commission (SEC) filed multiple cases against crypto exchanges like Binance, Coinbase for allegedly offering unregistered securities. One of the more popular and widely-followed cases was that against Ripple, which alleged that XRP was sold as securities in its initial sale. This was the kind of approach that the SEC under Gary Gensler preferred.

This took a turn after President Trump courted the industry ahead of the 2024 elections, proposing clear rules and incentives.

Once he won the elections and replaced the SEC’s Chairman with Paul Atkins, the institution has toned down its harsh policies and established a crypto task force.

On regulations, the House passed the Digital Asset Market Clarity Act a year after the bipartisan approval of the Financial Innovation and Technology for the 21st Century Act (FIT 21).

Both bills seek to restructure the regulatory framework between the Commodities Futures Trading Commission (CFTC) and the SEC. Though not yet laws, they provide a perspective on the direction of crypto regulation in the future.

The “MiCA Effect” in Europe: Full Implementation

Europe led crypto exchange regulations with the implementation of the Markets in Crypto Assets (MiCA) regulation. But sentiment towards this bill remains mixed. Some hail it as a landmark regulatory development, while others view it as overextension and overregulation.

In Q1 2025, multiple exchanges operating in the European Economic Area (EEA), including Binance, Kraken, and Bitstamp announced plans to delist Tether’s USDT stablecoin and other non-compliant assets.

The full effect of the law mandates non-EU issuers to set up a legal entity within the EEA, among other requirements, not limited to reserves, audits, and reporting. Under MiCA, failure to satisfy ART/EMT licenses will prompt Crypto Asset Service Providers (CASPs) to treat the asset as “non-compliant.”

The strict application of these rules has led to major issuers and crypto firms seeking new licenses in France, Italy, and other EU countries.

The “Travel Rule” Is Now Global Standard

The Travel Rule requires CASPs, including exchanges and custodians, to collect and transmit certain information during digital asset transfers. This deepens crypto exchanges’ regulations, taking it closer to centralized finance standards.

The long-standing Financial Action Task Force (FATF) directive on crypto was first introduced in 2019 and has since been fully adopted across jurisdictions. Generally, exchanges are required to provide the full legal name, blockchain wallet address, physical address, or ID number, and other information to prevent money laundering and sanction evasion.

Originally intended to apply to transactions above $1,000, the EU and other jurisdictions have amended the threshold, making it applicable to smaller transactions (or at least requiring basic information). This strict application places retail traders under the umbrella but has created new privacy concerns.

The global AML rule opens user information, creating centralized collection and linking identities to on-chain activities. Many argue that this defeats the purpose of blockchain transactions, as authorities and bad actors can trace a trader’s history.

Key Regulatory Frameworks You Must Know

United States: The Stablecoins and Digital Asset Acts

The United States has passed key crypto regulations, with many still being amended in Congress. Notably, the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) was signed into law in July.

The federal law establishes a framework for stablecoin payments from issuance to settlements. Companies must meet reserve requirements, and it further clarifies that stablecoins are not treated as securities under US law.

This clarity fueled big bank investments in the crypto market with many exploring stablecoin payment and custody options. Banks can now offer custody to institutional managers as rules clear up, a shift over the past year. Upcoming market structure rules like FIT21 and the Digital Asset Market Clarity Act show the direction of US regulators.

European Union: Markets in Crypto-Assets (MiCA)

MiCA classifies stablecoins into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs) with an outright ban on algorithm-pegged assets. Stablecoin issuers are obligated to be licensed under these categories.

Under MiCA, an EMT issuer must be a licensed e-money or credit institution, while ARTs must either be established within the jurisdiction or create a legal entity.

To protect investors, stablecoins must be backed 1:1 with assets in regulated custodians, and reserves must be held separately from issuer funds. In addition to these, issuers must also redeem 1:1 back to fiat and offer regular disclosures.

For “significant stablecoins,” assets with larger market caps, volume, and reserve size, stricter requirements are imposed. Stablecoin issues are also prevented from offering interests from holdings, making a clear distinction from bank holdings.

Asia-Pacific: The “Sandbox” Leaders (Hong Kong, Singapore, Japan)

Popular for emerging crypto regulations, these jurisdictions have driven the tokenization of Real World Assets (RWA). Hong Kong began exploring RWA frameworks in 2024. The Project Ensemble Sandbox allowed experiments in traditional financial assets, including tests in interbank settlements, etc.

This year, a broader LEAP template under the Digital Asset Development Policy 2.0 supports a wide range of real-world assets. Similarly, Singapore has embraced these assets, creating an open system to boost tokenization. At the moment, RWA-backed products are essentially grouped as capital market products.

Japan has taken a more institutional-based approach with large firms launching property tokenization. Recently, SBI Holdings partnered with Chainlink to build RWA infrastructure. Like stablecoins, tokenized RWAs are strictly monitored in terms of custody segregation and AML/KYC requirements.

The Middle East (UAE/VARA): The Global Crypto Hub

Crypto regulations in the Middle East are becoming more defined as institutional investors flood the scene. The United Arab Emirates is in the spotlight after launching a bold move to become the Global Crypto Hub.

UAE’s crypto focus became prominent in 2022 after authorities formed the Virtual Assets Regulatory Authority (VARA) in Dubai. Designated to control blockchain activities, early successes were recorded, leading to the formation of other bodies across the region.

In May, VARA 2.0 was released, clearly defining Virtual Asset Service Providers (VASPs) in Dubai. Crypto firms are now tightly regulated in several areas including custody, brokerage, exchange services, transfer and settlement, lending, etc.

In addition to clear regulations, Dubai has become more attractive to firms due to government incentives and long-term vision. Several firms have obtained VASPs licenses to launch crypto and tokenization services in the region.

For Traders: How 2025 Crypto Regulations Affect Your Money

The Evolution of KYC Requirements

Know-Your-Customer (KYC) requirements are now taken more seriously across decentralized finance (DeFi) protocols. Recently, the US signed another law into effect, which differentiates between DeFi protocols and brokers, making it easier for these providers and no longer requiring them to pass mandatory KYC on their users.

However, many international authorities treat the crypto market as a mature sector rather than an experimental technology. This comes on the back of trillions in institutional funds, global banking integrations payments flows.

KYC laws are regarded as the base of regulation after adoption. Crypto exchanges are mandated to collect and verify data to prevent money laundering, sanction evasion, and ransomware payouts.

To protect investors and prevent emerging scams, some regulators have implemented KYC and tightened monitoring from both centralized and decentralized exchanges. For enforcement, regulators treat access points as financial intermediaries targeting domain providers, among others, since smart contracts are autonomous.

If a DEX interface allows it to trade and carry out financial services, it becomes subject to all reporting requirements. In a nutshell, DEX frontends are hosted by identifiable groups, leading to a change of enforcement procedure.

While crypto is permissionless at the smart contract stage, front-end access points are strictly under the same rules as centralized financial intermediaries. If an interface onboards users and facilitates transactions, KYC is required. For many stakeholders, KYC requirements tightened due to massive adoption and not previous failures.

The “Stablecoin Squeeze”: Which Coins are Safe To Hold?

Generally, MiCA-compliant stablecoins are the safest assets to hold within the EU. Circle’s USD Coin (USDC) is tipped as widely regulated alongside euro-denominated assets. Stablecoins that are fully backed with confirmed reserves under MiCA and upcoming UK rules are safe to hold.

Increased regulatory scrutiny has led to the exchange delisting of several stablecoins. Under MiCA, failure to meet EMTs and ARTs requirements prompts delisting. This year, the European Securities and Markets Authority (ESMA) warned issuers to become fully compliant.

In Europe, authorities continue to cite domestic risks and cross-border regulatory arbitrage. This occurs when mixed issuers outside the EU are not subject to the base audits, reserves, and reporting requirements.

Tax Reporting: The Era of Automated Data Sharing (DAC8 & 1099-DA)

Crypto exchanges are required to report transactions to tax authorities automatically. Both DAC8 in Europe and 1099-DA in the United States introduced similar principles that are now being modeled by emerging markets. Exchanges and other platforms send user identity, cost basis, sale proceeds, and transaction IDs to the IRS.

This model eliminates anonymous trading making each transaction tax compliant. Just like stocks, the revenue authority matches tax returns with reported data, a global shift in digital asset regulations.

Non-compliant exchanges will face stiff penalties and could lose licenses and banking access. Furthermore, the OECD’s Crypto Asset Reporting Framework (CARF) causes countries to share tax information across borders.

DAC8 & 1099-DA automates tax enforcement, imposing strict penalties for digital asset exchanges.

Future Trends: What to Expect in 2026

Tokenized Securities and Real World Assets

Tokenization is expected to dominate industry narratives in 2026 as analysts tip blockchain markets to become the operational infrastructure for centralized finance.

So far, banks and other players have launched successful pilots with anticipation building towards issuance. Tokenization introduced instant settlement, atomic swaps, lower custody costs, and worldwide distribution without compliance.

Blockchains are also expected to become the backend structure for traditional finance with collateral tokenization and settlement designated to on-chain rails. The biggest winners in this RWA boom are tokenized treasuries, compliant stablecoins, private credit RWAs, etc.

Central Bank Digital Currencies (CBDCs) vs Private Stablecoins

The power struggle between both CBDCs and stablecoins will become more intense as governments and private investors ramp up efforts. Both assets serve largely the same purposes in settlements; however, principles are sparking market debates.

CBDCs are issued by central banks, essentially government-backed tokens. They allow programmable and traceable currency. Private stablecoins, on the other hand, are issued by firms like Circle, Tether, etc.

Governments have pushed CBDCs, citing risks associated with private stablecoins. Authorities also want AML compliance and strict tax compliance, adding that private stablecoins can jeopardize national economic security.

However, private assets are global and largely preferred to CBDCs. These assets work everywhere once given the regulatory light and can be seamlessly plugged into a cross-chain architecture. Some countries also back CBDCs because of the dominance of dollar-denominated stablecoins.

In reality, both are likely to coexist in 2026 as central banks continue pilot phases. It should be noted that stablecoins are primed for massive adoption next year. This follows the over-the-top institutional investment in past months.

Frequently Asked Questions (FAQ)

Is Binance legal in the US in 2025?

The global Binance exchange is not legal in the United States following its 2019 ban for violating US federal law. However, Binance.US, a separate entity, is allowed to operate in the US but remains restricted in several regions. Currently, Binance.US is unavailable in Texas, Oregon, and Ohio, with new user onboarding paused in Michigan.

Which countries have zero crypto taxes and clear regulations?

Тhe United Arab Emirates (UAE), the Cayman Islands, and Singapore do not impose personal income or capital gains tax on cryptocurrencies. Apart from zero taxes, these countries have clear regulatory and licensing frameworks for virtual asset service providers, as well as free zones and crypto hubs.

Can I trade crypto without KYC in 2025?

It is still possible to trade crypto without KYC requirements in 2025 using decentralized and peer-to-peer platforms.  However, it has become increasingly difficult because most regulated jurisdictions have blocked access points. Several institutions have also cut ties with non-KYC-compliant firms.

What is the “Travel Rule” threshold for transfers?

According to the Financial Action Task Force (FATF) guidelines, the recommended baseline threshold for cryptocurrency transfers is USD/EUR 1,000 for cross-border transactions. It should be noted that some jurisdictions, like the EU, have scrapped the threshold for crypto assets. Virtual asset service providers are required to collect, store, and transmit specific originator and beneficiary information to combat fraud, money laundering, and sanctions evasion.

Are algorithmic stablecoins illegal now?

Algorithmic stablecoins are not globally illegal, but several jurisdictions have imposed strict guardrails around their use. In the US, the GENIUS Act effectively banned the use of algorithmic stablecoins, mirroring MiCA. It has become impossible to issue algorithmic stablecoins because assets are required to be backed 1:1.

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