Citadel Securities-backed prime brokerage firm Hidden Road has stopped offering clients access to the third-largest crypto exchange, Bybit, sparking a dispute between the two companies over know-your-customer (KYC) and anti-money laundering (AML) requirements.

Bybit Users Impacted

Hidden Road informed its clients about the decision to prevent access to Bybit a few weeks ago, though the exact disagreement between the two companies over Bybit's KYC and AML requirements remains unclear. This move has caused dissatisfaction among clients, as users preferred to access crypto with trusted companies or brokers.

Bybit's Compliance Review

In response, Bybit has started a "comprehensive compliance review" of its prime brokerage business. This comes amid increased regulatory scrutiny over crypto exchanges, particularly after Binance's historic $4.3 billion settlement with US authorities last year, which led the exchange to ask prime brokers, including Hidden Road and FalconX, to run more stringent checks, keeping US investors off the crypto exchange.

Bybit's Spokesperson Statement

A Bybit spokesperson stated, "Bybit will not comment on specific inquiries related to counterparties at this time. However, the company is committed to transparency and will provide further updates as the review progresses."

Regulatory Challenges and Market Shifts

The dispute between Hidden Road and Bybit is a reflection of the broader regulatory challenges facing the crypto industry. The US regulators, including the SEC, have accused Binance of allowing US-based customers to trade on the international exchange through offshore entities, without implementing necessary controls required by US law.

Bybit's Market Share Rise

As a result of the lawsuits and investigations against Binance, Binance.US, and its CEO, Changpeng Zhao, other crypto exchanges, such as OKX and Bybit, have seen a massive rise in crypto trading, with an increase in demand during the current bull market. However, some crypto companies and exchanges have even moved offshore amid the stringent regulation in the United States.

The dispute between Hidden Road and Bybit highlights the ongoing challenges faced by crypto users and exchanges in navigating the complex regulatory landscape, as they strive to maintain compliance and provide seamless access to digital asset trading.