A closer look at the legal framework behind digital asset services

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An exclusive article by Michael Schmitt, who adds the following disclaimer:
“This article offers a critical reading of the original publication “Behind the Scenes of Compliance at Damex: How We Keep Your Business Safe, Legal & Trusted” issued by damex.io on 7 April 2025. It is intended solely for public interest analysis based on available information at the time of writing.“

Compliance as a continuous process, not merely a public commitment

In the rapidly evolving and sometimes inconsistently regulated world of digital assets, cultivating a robust compliance infrastructure is widely recognised as a complex task. For damex , a company which describes itself as a regulated digital asset platform, compliance is framed not as a formality but as an integral part of its operational ethos.

While the company’s public communications suggest a strong commitment to regulatory alignment, observers may find it constructive to examine the broader environment in which such firms operate. This includes the frameworks associated with Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF), as well as questions surrounding tax compliance and transparency in cross-border contexts.

This article aims to review publicly presented aspects of Damex’s compliance posture, highlighting areas where additional visibility or third-party assurances could further enhance understanding among stakeholders, industry participants and regulatory bodies.

Jurisdiction-based risk assessments: applying frameworks across multiple legal systems

Damex indicates that its risk assessment process is tailored for each jurisdiction in which it operates or maintains client relationships. The company states that these assessments form the basis for its onboarding approach and are designed to integrate both domestic regulatory requirements and broader international standards.

This principle-based methodology reflects a conscientious strategy. At the same time, real-world application of such processes can involve interpretative variation, particularly in jurisdictions where regulatory guidance may be evolving or where supervisory enforcement practices differ. The term “under our regulatory umbrella,” as used by Damex, appears to denote a defined operational scope, although further elaboration on its boundaries could support external understanding.

For clients based in the UK and EEA, regulatory expectations include adherence to frameworks such as MiCA, PSD2 and AMLD5. In other regions (particularly parts of Asia, Africa and Latin America) the specific mechanisms for enhanced due diligence and client verification are less clear from publicly available sources. Greater detail on the jurisdiction-specific measures applied could help clarify how compliance standards are maintained across geographic boundaries.

KYC and KYB procedures: technology use and oversight considerations

The company states that it employs a comprehensive suite of KYC and Know Your Business (KYB) checks, including biometric tools, document verification and identification of ultimate beneficial ownership (UBO). These processes are reported to be supported by third-party technologies such as Sumsub and Chainalysis .

The use of such tools aligns with evolving industry practice. However, in the broader sector, questions are sometimes raised about how third-party verification tools are assessed and maintained. While Damex does not make specific claims in this regard, public-facing materials do not specify how these tools are selected, validated or reviewed for consistency. This is a sector-wide consideration and not unique to Damex.

Screening processes reportedly include sanctions lists and Politically Exposed Person (PEP) identification. The effectiveness of such measures often depends on the timeliness and comprehensiveness of the data sets used, particularly in complex global environments. Additional public disclosure about how these controls are maintained and audited may help provide greater clarity.

Use case declarations: monitoring consistency over time

Damex has indicated that it evaluates a client’s stated purpose for using its platform at the onboarding stage. These include services such as OTC crypto-fiat transactions, international remittances and stablecoin-related payments.

This approach is aligned with recommended onboarding practices. That said, use cases can evolve over time. From publicly available information, it is not immediately evident whether ongoing transactional behaviour is monitored in a way that detects changes in a client’s operational profile. It is also not clear whether automated systems or manual reviews are applied to monitor deviations from initial declarations.

Providing additional visibility into these mechanisms (for example, whether clients are periodically re-evaluated or prompted to update their use case) may offer external observers more assurance regarding the platform’s ongoing compliance efforts.

Transaction monitoring: process transparency and detection methodologies

Damex has outlined that it carries out both real-time and retrospective transaction monitoring to detect anomalies, behavioural irregularities and unusual counterparty interactions. In such instances, the company reports that its internal compliance team conducts manual reviews to assess flagged activity.

While this level of monitoring is consistent with recognised industry norms, the efficiency of such systems often depends on their configuration and the responsiveness of human-led review. As the company has not published audit findings or operational performance metrics, it is currently difficult for outside observers to independently assess the overall effectiveness of its detection mechanisms.

Given the focus of agencies such as Financial Crimes Enforcement Network, US Treasury and HM Revenue & Customs on digital asset tracing and transaction integrity, further insight into the structure or regularity of monitoring efforts could contribute to a more comprehensive understanding of how potential risks are managed.

Licensing and regulatory interaction: compliance recognition versus procedural assurance

According to Damex’s own reporting, the company is authorised under the Gibraltar Financial Services Commission and references its alignment with European legal instruments such as MiCA and PSD2. Damex also cites an intention to maintain ongoing dialogue with relevant supervisory bodies.

Such disclosures suggest a regulatory-first posture. At the same time, having a licence or authorisation may not, in itself, guarantee the operational maturity of a compliance framework. Standards such as “fit and proper” requirements can vary between jurisdictions and supervisory capacity may differ in scope and frequency.

It is also notable that public-facing materials at the time of writing do not offer detailed insight into how cross-border taxation issues are managed. This is a common feature in the sector and does not imply any omission or deficiency. Considering international developments from organisations such as the OECD – OCDE and Financial Action Task Force (FATF) in areas of crypto taxation and transparency, this may be an area where additional detail could enhance understanding of how fiscal compliance is interpreted and implemented.

Final observations: operational commitment and ongoing review

Damex has made several public declarations suggesting a proactive approach to compliance. Its integration of technical tools, cooperation with regulatory authorities and apparent focus on customer verification are consistent with the behaviour of firms aiming to align with current expectations.

Nonetheless, certain aspects may benefit from further public documentation. These include:

Whether external audits are regularly conducted
How third-party tools are selected and evaluated
What communications are issued to clients regarding their own compliance obligations

These considerations are not exclusive to Damex, but reflect broader questions relevant to all firms operating in the crypto-financial sector. As regulatory harmonisation increases across the European Securities and Markets Authority (ESMA) region and beyond, firms may be expected to demonstrate not just policy frameworks, but functional implementation and verifiable controls.