Regulatory Risk in Crypto-Enabling Fintech Firms: Governance and Compliance Vulnerabilities in a Shifting Landscape

The U.S. Securities and Exchange Commission's (SEC) enforcement actions against crypto-enabling fintech firms in 2024 and 2025 have underscored a critical tension between regulatory oversight and industry innovation. While the agency initially adopted an aggressive posture—levying record fines and pursuing high-profile lawsuits—it has since pivoted toward a more collaborative approach, raising questions about the long-term implications for corporate governance and compliance in the sector.

Corporate Governance Failures: Terraform Labs and the UST Collapse

The most emblematic case of governance failure in recent years is Terraform Labs, the operator of the algorithmic stablecoin UST. In 2024, the SEC secured a $4.5 billion settlement with Terraform and its co-founder, Do Kwon, following a jury's unanimous finding of securities fraudSEC Announces Dismissal of Civil Enforcement Action Against Coinbase[^1]^[1]. The collapse of UST in May 2022, which erased billions in investor value, exposed systemic flaws in the firm's risk management and transparency practices. According to a report by Cryptopolitan, the SEC's case against Terraform accounted for over 56% of its total financial remedies in 2024SEC Case Against Terraform Labs Lead Account for Over 50% of Its Record Year Financial Remedies[^2]^[2], highlighting the agency's focus on holding firms accountable for misleading claims and inadequate safeguards.

This case exemplifies a broader trend: crypto firms often prioritize rapid growth over robust governance frameworks. Terraform's failure to disclose the fragility of UST's algorithmic design and its reliance on speculative market conditions left investors exposed to catastrophic losses. As the SEC noted in its enforcement action, such governance lapses not only violate securities laws but also erode trust in the entire ecosystemSEC Announces Dismissal of Civil Enforcement Action Against Coinbase[^1]^[1].

The SEC's Strategic Shift: From Enforcement to Guidance

By early 2025, the SEC under Acting Chair Mark Uyeda began rolling back enforcement actions initiated under former Chair Gary Gensler. Notable dismissals include cases against Coinbase, Kraken, and Binance, with the agency emphasizing a shift toward “regulation by clarity” rather than “regulation by enforcement”SEC Dismisses Enforcement Action Against Coinbase; Issues Guidance on Meme Coins[^4]^[4]. For instance, the SEC dismissed its lawsuit against Coinbase with prejudice, a move it attributed to the formation of the Crypto Task Force, which aims to develop a comprehensive regulatory frameworkSEC Announces Dismissal of Civil Enforcement Action Against Coinbase[^1]^[1].

While industry leaders praised these rollbacks as a step toward reducing regulatory uncertainty, critics warned of potential risks. Commissioner Caroline A. Crenshaw, for example, cautioned that abandoning enforcement actions could create a “regulatory vacuum,” incentivizing noncompliance until new rules are finalizedAll SEC Enforcements Dropped So Far and What It Means for the Industry[^5]^[5]. This duality—between fostering innovation and maintaining investor protections—remains a central challenge for regulators and firms alike.

Compliance Vulnerabilities in Emerging Sectors

The SEC's 2024 enforcement actions also targeted decentralized finance (DeFi) platforms, staking operations, and non-fungible tokens (NFTs), where compliance frameworks remain nascent. A report by The Currency Analytics noted that the SEC imposed $4.98 billion in penalties across 33 enforcement actions in 2024, with DeFi platforms accounting for a significant shareSEC’s 2024 Crypto Actions: $5B in Penalties, DeFi Growth Amid Regulation[^3]^[3]. These cases often involved unregistered securities offerings and inadequate anti-money laundering (AML) controls, exposing gaps in how firms adapt traditional compliance practices to decentralized technologies.

For example, Binance's $4.3 billion settlement with the Department of Justice (DOJ) for AML violations and sanctions evasionSEC Announces Dismissal of Civil Enforcement Action Against Coinbase[^1]^[1] highlighted the risks of operating in jurisdictions with weak regulatory alignment. Similarly, the SEC's dismissal of its case against Kraken—without requiring penalties or operational changes—raised questions about whether firms would face sufficient incentives to strengthen compliance programsSEC Dismisses Enforcement Action Against Coinbase; Issues Guidance on Meme Coins[^4]^[4].

New Guidance and Its Implications

In 2025, the SEC issued clarifications on stablecoins and meme coins, stating that stablecoins generally do not qualify as securities under the Howey testSEC Dismisses Enforcement Action Against Coinbase; Issues Guidance on Meme Coins[^4]^[4]. This guidance, while welcomed by industry participants, also underscored the agency's focus on fraud and misconduct rather than broad categorization of assets. For instance, the SEC's staff statement on meme coins emphasized that speculative trading in these assets does not inherently constitute securities activityAll SEC Enforcements Dropped So Far and What It Means for the Industry[^5]^[5], a nuance that could reduce regulatory friction for certain projects.

However, this shift does not eliminate risks. As Winston & Strawn observed, the SEC's guidance explicitly reserves the right to pursue enforcement against fraudulent conduct, regardless of asset classificationAll SEC Enforcements Dropped So Far and What It Means for the Industry[^5]^[5]. This duality—providing clarity while retaining enforcement flexibility—requires firms to maintain rigorous compliance programs even in the absence of explicit rules.

Conclusion: Balancing Innovation and Accountability

The SEC's evolving approach to crypto fintech firms reflects a broader struggle to balance innovation with investor protection. While the dismissal of high-profile cases may create short-term stability, it also raises concerns about whether firms will prioritize governance and compliance in the absence of immediate enforcement threats. For investors, the key takeaway is clear: regulatory risk remains a critical factor in evaluating crypto-enabling fintech firms.

As the industry navigates this shifting landscape, firms that proactively address governance gaps and align with emerging regulatory expectations will likely outperform those that rely on regulatory ambiguity. The SEC's pivot toward clarity is a positive step, but its success will depend on the industry's willingness to embrace accountability—a lesson Terraform Labs' collapse made painfully evident.